DCIT, CORPORATE CIRCLE 2(1), CHENNAI vs. EL FORGE LIMITED, CHENNAI

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ITA 2143/CHNY/2017Status: DisposedITAT Chennai29 January 2018AY 2013-144 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the disallowance under Section 14A cannot exceed the income claimed as exempt by the assessee. Therefore, the CIT(A) was justified in restricting the disallowance.

What were the facts?

The Assessing Officer disallowed Rs. 33,64,743 under Section 14A read with Rule 8D, while the assessee claimed exempt dividend income of Rs. 70,169. The CIT(A) restricted the disallowance to the exempt income claimed.

What were the issues?

Whether the disallowance under Section 14A can exceed the exempt income earned by the assessee.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘D’ BENCH : CHENNAI

Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN

For Respondent: Shri. A.S. Sriraman, Advocate

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:

1.

Department in this appeal is aggrieved that ld. Commissioner of Income Tax (Appeals) restricted disallowance made by the ld. Assessing Officer u/s.14A of the Income Tax Act, 1961 (herein after referred to as ‘the Act’) r.w.Rule 8D of the Income Tax Rules, 1962 (herein after referred to as ‘the Rules’) to the extent of exempt dividend income claimed by the assessee.

ITA No. 2143/Mds/2017 :- 2 -:

Assessee a manufacturer of automobile spare parts had 2. claimed dividend of �70,169/- as exempt for the impugned assessment year. Ld. Assessing Officer found that assessee had investments worth �4,71,04,152/- as on 31.03.2013. He made a disallowance u/s. 14A of the Act and computed the quantum of such disallowance under Rule 8D. Such disallowance came to �33,64,743/-.

3.

On assessee’s appeal, ld. Commissioner of Income Tax (Appeals) relying on Hon’ble Delhi High Court judgment in the case of Joint Investments Private Limited vs. CIT, 372 ITR 694 restricted the disallowance to the quantum of exempt income claimed by the assessee.

4.

Now before us, ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that ld. Assessing Officer could make a disallowance u/s.14A of the Act r.w.r.8D, even when there was nil or minimal exempt income by virtue of circular No.5/2014, dated 11th February, 2014 of Central Board of Direct Taxes. Thus, according to her, ld. Commissioner of Income Tax (Appeals) fell in error in restricting the disallowance.

5.

Per contra, ld. Authorised Representative strongly supported the order of the ld. Commissioner of Income Tax (Appeals).

ITA No. 2143/Mds/2017 :- 3 -:

6.

We have considered the rival contentions and perused the orders of the authorities below. What was held by Hon’ble Delhi High Court in the case of Joint Investments Private Limited (supra) 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’’.

Hon’ble Jurisdictional High Court in the case of Regindton (India) Ltd vs. JCIT (2016) 97 CCH 219 has held that 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 ITA No. 2143/Mds/2017 :- 4 -: 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 7. dismissed.

Order pronounced in the open court at the day of hearing on 29th January, 2018, at Chennai.

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