Loading judgment…
Facts
The Revenue appealed against the CIT(A)'s order, challenging the deletion of disallowance under section 14A. The original assessment was made under section 143(3), and the case was reopened under section 147 due to an alleged escapement of income related to section 14A disallowance.
Held
The Tribunal noted that the assessee had offered dividend income for taxation and had not claimed any exempt income. Therefore, there was no basis for disallowance under section 14A. The Tribunal also referred to previous decisions of the ITAT in the assessee's own case.
Key Issues
Whether disallowance under section 14A is warranted when the assessee has offered dividend income for taxation and has not claimed any exempt income.
Sections Cited
14A, 143(3), 147, 148, 8D(ii), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘E‘ BENCH
Before: SHRI AMIT SHUKLA & SHRI RANESH NANDAN SAHAY
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the Revenue against order passed by CIT(A)-53, Mumbai for the quantum of assessment passed u/s. 143(3) r.w.s.147 dated 22/12/2019. 2. In the grounds of appeal, the Revenue has challenged the deletion of disallowance u/s.14A of Rs.2,28,74,132/-. The Revenue has raised the following grounds:-
Satellite Developers Pvt. Ltd "1. Whether on the facts and circumstances of case and in law, the Ld. CIT(A) was justified to restrict the disallowance u/s 14A of the Act to the extent of exempts income earned during relevant A.Υ.. without appreciating the fact that the AO rightly worked out the disallowance u/s 14A as per the rule 2. 8D(ii) of Income tax Rule, 1962?" "Whether on the facts and circumstances of case and in law, the Ld. CIT(A) was justified to restrict the disallowance u/s 14A of the Act to the extent of exempt income earned during relevant A.Y., without appreciating CBDT Circular No. 05/2014 dated 11.02.2014 wherein, it has been clarified that Rule 8D provides for disallowance of expenditure even where the assessee in particular has not earned exempt income?" 3 "Whether on the facts and circumstances of case and in law, the Ld. CIT(A) was justified to restrict the disallowance u/s 14A of the Act to the extent of exempt income earned during relevant A.Y.. without appreciating the latest amendment made in the act, which are clarificatory in nature?"
The brief facts are that, in the case of the assessee, original assessment was passed u/s.143(3) dated 22/03/2015 whereby, the total income was assessed at Rs.8,42,52,520/- as against the return of income of Rs.7,77,73,844/-. The assessee’s case was then reopened u/s.147 on the ground that there is an escapement of income of Rs.2,28,74,132/- on account of disallowance u/s.14A which was left to be made in the original assessment order u/s.143(3). Accordingly, notice u/s.148 was issued on 28/03/2019. The ld. AO noted that assessee has earned dividend income of Rs.9,54,044/- and assessee has not offered any disallowance u/s.14A. The very important fact which was brought to the notice of the ld. AO not only in the objection u/s 148 but also on merits that assessee has offered this dividend income to tax and there was no tax free income claimed Satellite Developers Pvt. Ltd in the return of income and therefore, no disallowance u/s 14A is called for. Despite this specific contention, the ld. AO still proceeded with the reassessment and held that despite there is no exempt income claimed still assessee is liable for disallowance u/s.14A and after mechanically applying Rule 8D(2)(ii), he made disallowance of Rs.2,28,24,132/-.
The ld. CIT(A) has partly allowed the assessee’s appeal holding that ld. AO shall exclude dividend income from its taxable income and disallow the sum of Rs.9,54,044/- u/s.14A. Ld. CIT(A) has also referred to the ITAT order in the case of the assessee for A.Y.2014-15 and 2015-16 wherein, it was held that when assessee has itself offered the dividend income for tax and there is no exempt income which has been claimed, then no disallowance can be made after following the decision of the Hon’ble Bombay High Court in the case of DCIT vs. Ballarpur Industries Ltd in of 2016 dated 13/10/2016. Despite that he gave such direction that AO shall exclude dividend income from its taxable income and disallow the sum of Rs.9,54,044/- u/s.14A. Now despite such direction revenue has filed this appeal.
After considering the relevant finding given in the impugned order as well as material on record, we found that assessee specifically before the ld. AO had pointed out that there is no exempt income claimed in the return of income and therefore, no disallowance u/s.14A is called for. Despite such an objection raised during the course of re-assessment proceedings, he still Satellite Developers Pvt. Ltd proceeded to make these disallowances of more than Rs.2.28 Crores. Ld. CIT(A) had noted as under:- 7. Ground nos. 2, 3, 4 & 5: These grounds relate to the disallowance u/s 14A and hence are decided together. One of the contention of the appellant is that the entire dividend income of Rs. 9,54,044/- received during the year has been offered for taxation and there is no other exempt income. Besides, the appellant has contended that it has adequate interest free funds. Various other arguments have also been made which have been duly considered.
The situation for the year under reference is identical. During the year, the appellant has claimed that Rs. 9,54,044/ being dividend income has been offered for taxation. On the same line as in A.Y. 2013-14 as decided by Hon'ble ITAT it is held that the AO shall exclude the dividend income of Rs. 9,54,044/ from its taxable income and also disallow a sum of Rs. 9,54,044/- u/s. 14A of the Act as expenditure relating to the above said exempt income. Hence, these grounds are treated as PARTLY ALLOWED.
Despite the fact that assessee had neither claimed any exempt income and dividend income which was earned had also been offered for taxation, still department had preferred an appeal against the aforesaid CIT(A) order whereby, he has directed the AO to exclude the dividend income from taxable income and disallow the entire dividend income. In fact once the assessee itself has not claimed any exempt income there was no question of triggering the disallowance u/s.14A. In any case, this issue stands covered by the decision of the Tribunal in assessee’s own case for the A.Y.2014-15 and 2015-16 and accordingly, we Satellite Developers Pvt. Ltd do not find any merits in the ground raised
by the Revenue and the same is dismissed.
6. In the result, appeal of the Revenue is dismissed. Order pronounced on 30th May, 2024.