ASSISTANT COMMISSIONER OF INCOME TAX, MUMBAI vs. ESSAR PORTS LTD., MUMBAI

M/s. Essar Ports Ltd. 1."Whether on the fact and in the circumstance of the case Land in law, the Ld. CIT(A) erred in directing the AO to restrict the disallowance u/s. 14A of the I.T. Act, 1961 at Rs. 22,08,04,470/-, when the assessee company while computing its taxable income suo-moto disallowance u/s. 14A at Rs. 38,00,65,574/- as against the exempt income of Rs. 22,08,04,470/-? 2 "Whether on the facts and in the circumstances of the case p and in law, the Ld. CIT(A) erred in directing the AO to delete the disallowance u/s. 14A of the I.T. Act, 1961, of Rs. 38,00,65,574/- which the assessee company suo-moto made while computing income as per the provisions of section 115JB of the I.T. Act, 1961 and there by upholding that provisions of section 14A cannot be extended and read into section 115JB, falling under Chapter XII-B of the Act? 3 The Appellant revenue prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 4 The appellant craves leave to amend, or amend, or alter any grounds or add a new ground, which may be necessary.

Brief facts are that assessee had declared dividend income of Rs. 22.08 Crores which has been claimed as exempt. The assessee vide letter dated 23/12/2018 had made suo-motto made disallowance of Rs.38,00,65,574/- as against exempt income claimed to the extent of Rs.22,08,04,740/-. However, the ld. AO computed the disallowance as per working provided in Rule 8D at Rs.33,47,01,107/- and since suo-motto disallowance u/s.14A offered by the assessee was more than formula provided under Rule 8D, AO did not made any disallowance. But, before the ld. CIT(A), assessee contended that now it is well settled law that disallowance u/s.14A cannot exceed exempt income declared by the assessee and therefore, disallowance should be restricted to M/s. Essar Ports Ltd. dividend income declared by the assessee. The ld. CIT(A) following the ITAT order in assessee’s own case for A.Y.2010-11 in vide order dated 06/01/2020 had restricted the disallowance to the extent of exempt income. The relevant observation and the finding of the ld. CIT(A) is reproduced as under:- 7.2. Decision: I have considered the assessment order of the A.O and the submissions along with case laws made by the Appellant. It is observed that the A.O initially in the draft assessment order passed u/s. 144C(1) rws 143(3) of the Act dated 15.02.2019, had worked out the disallowance u/s 14A r wr 8D at Rs.33.47,01,107/- However, the assessee itself has disallowed amount of Rs.38,00,65,574/- u/s.14A in its return of income, the A.O has not done any further disallowance u/s 14A of the Act. 7.3. During the course of assessment proceedings the assessee had submitted before A.O that the disallowance u/s 14A of the Act was liable to be restricted to the extent of the exempt dividend income of Rs 22.08.04 470/ that was earned by it during the year under consideration but the AO not done accepted the same and kept the disallowance amount same as offered by assessee in its return of income. To sum up, the assessee by raising the aforesaid claim had sought the scaling down of the disallowance u/s 4A of the Act upto the amount of the exempt dividend income that was earned during the year despite the fact that a higher amount was voluntarily offered as a disallowance under the aforesaid statutory provision in its return of income for the year under consideration 7.4. It is noted that disallowance u/s 14A of the Act has been restricted to the extent of dividend income earned during the financial year in appellant's own case for the A.Y.2010-11 in ITA No. 1831/Mum/2015 vide order dated 06.01.2020, the notings of the Hon'ble ITAT in this regard is reproduced hereunder - "8. We find that the assessee has assailed the disallowance made by the A.O under Sec. 14A on the ground that the same M/s. Essar Ports Ltd. as per the mandate of law could not have exceeded the exempt income that was earned by the assessee during the year Accordingly, it was the claim of the Id. A.R that the disallowance under Sec. 14A was liable to be restricted to the extent of the exempt dividend income of Rs.53,04,157/- earned by the assessee during the year under consideration. In the backdrop of the aforesaid facts, we find, that our indulgence has been sought by the assessee for adjudication of two issues viz (i) that, as to whether the disallowance under Sec. 14A is liable to be restricted to the extent of the exempt dividend ncome eamed by the assessee during the year, and (ii) that, is it permissible for the assessee to seek restriction of the disallowance under Sec. 14A at an amount lower than that which was suo moto offered in its retum of income. Insofar, the first issue is concerned le as to whether the disallowance under Sec. 14A cannot exceed the amount of exempt income earned by the assessee during the year, we find, that the said issue is squarely covered by the judgment of the Hon'ble High Court of Delhi in the case of Jeint Investments Vs. CIT (372 ITR 694) (Del). Also, a similar view had been taken by the Hon'ble High Court of Punjab & Haryana in Pr. CIT Vs. State Bank of Patiala (2017) 393 ITR 476 (P & H). The 'Special Leave Petition (for short 'SLP) filed by the revenue against the aforesaid the order of the Hon'ble High Court of Punjab and Haryana had been dismissed by the Hon'ble Supreme Court in Principal CIT, Patiala Vs. State Bank of Patiala (2018) 259 Taxman 314 (SC) Further, the coordinate benches of the Tribunal had also concluded that the disallowance under Sec. 14A cannot exceed the amount of exempt income earned by the assessee during the year in the following cases "M/s Slyvex Cable Co. Pvt. Ild. Vs. Dy. CIT [ITA No.8581/Mum/2011 for A.Y 2008-09, dated 24.02.2016) (i) Indus Valley Investments Vs DCIT (ITA No 3763/Del/2013 for A.Y 2009-10, dated 29.04.2015) (i) M's Daga Global Chemicals Vs. Asst. CIT (ITA No 5592/Mum/2012 dated 01.01.2015] (iv) Mis Global Capital Ltd. VS ACIT (ITA No. 6586/Del/2013 for A.Y. 2009-10, dated 27 11 2015).