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Income Tax Appellate Tribunal, ‘D’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
Assessee in this appeal is aggrieved on a disallowance made u/s.14A of the Income Tax Act, 1961 r.w.r 8D(2)(ii) of the Income Tax Rules, 1962.
ITA No.892/Mds/2017 :- 2 -:
Ld. Counsel for the assessee at the outset submitted that total dividend income claimed as exempt was only Rs.1,41,447/-. As
per the ld. Authorised Representative even if any disallowance u/s.
14A of the Act was to be made, it has to be limited to the exempt income claimed. Reliance was placed on the judgment of Hon’ble Delhi High Court in the case of Joint Investment P. Ltd vs. CIT 372 ITR 694 and that of Hon’ble Jurisdictional High Court in the case of Regindton (India) Ltd vs. JCIT (2016) 97 CCH 219. Ld. Counsel also stated that if the disallowance was curtailed to Rs.1,41,447/- other grounds raised could be considered as not argued.
Per contra, ld. Departmental Representative submitted that irrespective of the quantum of exempt income claimed, ld. Assessing Officer could make disallowance u/s.14A of the Act r.w.r. 8D by virtue of circular No.5/2014, dated 11th February, 2014 of Central Board of Direct Taxes.
We have considered the rival contentions and perused the 4. orders of the authorities below. It is not disputed that exempt income claimed by the assessee was only Rs.1,41,447/-. Disallowance made by the ld. Assessing Officer u/s.14A r.w.r 8D came to Rs.3,36,249/-.
ITA No.892/Mds/2017 :- 3 -:
The Hon’ble Delhi High Court in the case of Joint Investment P. Ltd (supra) held as under at para 9 of its judgment.
‘’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 (supra) 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 no room for doubt that disallowance u/s. 14A of the Act cannot exceed income claimed as ITA No.892/Mds/2017 :- 4 -: exempt by an assessee. We therefore restrict the disallowance u/s.14A of the Act to Rs.1,41,447/-.
In the result, the appeal of the assessee is treated as partly 5. allowed.
Order pronounced on Monday, the 27th day of November, 2017, at Chennai.