DCIT CORPORATE CIRCLE 2(1), CHENNAI vs. EWS FINANCE & INVESTMENTS P LTD., CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:

In this appeal filed by the Revenue, which is directed against an order dated 31.07.2017 of the ld. Commissioner of Income Tax (Appeals)-6, Chennai, it is aggrieved that the ld. Commissioner of Income Tax (Appeals) restricted the disallowance made by the ld. Assessing Officer u/sec. 14A of the Income Tax Act, 1961 (in short

ITA No.2382/2017 :- 2 -:

‘’the Act’’) to the extent of exempt dividend income claimed by the assessee.

We find that the issue raised by the Revenue is squarely 2. covered by the Hon’ble Delhi High Court judgment in the case of Joint Investments Private Limited vs. CIT, 372 ITR 694. What was held by their lordships is reproduced hereunder in dated 27.11.2017.

‘’9. In the present case, the AO has not firstly disclosed why the appellant/assessee’s claim for attributing Rs.2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee’s claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.8,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case’’.

Apart from the above, Hon’ble Jurisdictional High Court in the case of Regindton (India) Ltd vs. JCIT (2016) 97 CCH 219 held that ITA No.2382/2017 :- 3 -: expenditure incurred in connection with exempt dividend income would relate only to the previous year when the income was earned. In our opinion, there is no room for doubt that disallowance u/s. 14A of the Act cannot exceed income claimed as exempt by an assessee. Thus, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in restricting the disallowance to the quantum of exempt income claimed by the assessee. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).

In the result, the appeal of the Department stands 3. dismissed. Order pronounced in the open court at the time of hearing on Wednesday, the 20th February, 2018, at Chennai.