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Before: Shri Abraham P. George & Shri Duvvuru RL Reddy
आयकर अपील�य अ�धकरण, ‘‘सी” �यायपीठ, चे�नई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी अ�ाहम पी. जॉज�, लेखा सद�य एवं �ी धु�वु� आर.एल रे�डी, �या�यक सद�य के सम� Before Shri Abraham P. George, Accountant Member & Shri Duvvuru RL Reddy, Judicial Member I.T.A.Nos.1279 & 1535/Mds/2017 Assessment Years:2012-13 and 2013-14 M/s. Karmen International P. Ltd., The Deputy/Asstt. Commissioner of No. 12, Ponniamman Nagar, Vs. Income Tax, Ayanambakkam, Chennai 600 095. Corporate Circle 4(2) Chennai. [PAN: AAACK8998A] (अपीलाथ� /Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से / Appellant by : Shri S. Sridhar, Advocate ��यथ� क� ओर से/Respondent by : Shri Asish Tripathi, JCIT सुनवाई क� तार�ख/ Date of hearing : 04.09.2017 घोषणा क� तार�ख /Date of Pronouncement : 21.09.2017 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER:
Both the appeals filed by the same assessee are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 8, Chennai dated 19.09.2016 and 19.04.2017 for the assessment years 2012-13 and 2013-14 respectively. The only effective ground raised in both the appeals of the assessee is that the ld. CIT(A) has erred in confirming the disallowance of expenses made under section 14A of the Income Tax Act, 1961 [“Act” in short] r.w. Rule 8D.
2, Brief facts leading to the issue are that the assessee has earned dividend income of ₹.1,30,093/- against which the Assessing Officer made disallowance under section 14A of the Act at ₹.36,08,081/- in the assessment year 2012-13. Similarly, in the assessment year 2013-14, against the dividend income of ₹.1,84,335/-, ₹.29,34,258/- was disallowed under section 14A of the Act. It was the submissions of the assessee that no borrowed funds were utilised for making the investments that yield the exempt income and the disallowance under section 14A of the Act, if any, should be restricted to the actual dividend received by the assessee. The assessee relied on the decision of the Tribunal in assessee’s own case for the assessment year 2010-11 and prayed that similar decision shall be taken or the assessment years under consideration.
On the other hand, the ld. DR supported the orders of the authorities below.
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. In the assessment order for the assessment year 2012-13, without discussing in detail warranting exorbitant disallowance of ₹.36,80,081/- for the dividend income of ₹.1,30,093/-, the Assessing Officer made the disallowance. By filling the balance sheet and profit & loss account, the ld. Counsel for the assessee vehemently argued that the assessee had sufficient “Reserves & Surplus” to make investment and moreover, no borrowed funds were utilized for making the investment that yielded the exempt income and warranting huge disallowance under section 14A of the Act. He further argued that if at all disallowance to be made it should not be made more than the exempt income earned by the assessee and prayed that the disallowance should be restricted to the extent of exempt income earned by the assessee. We find force in the arguments of the ld. Counsel. We have also perused the balance sheet and profit & loss account, wherein the assessee had sufficient “Reserves & Surplus” to make investments. While deciding similar issue in the assessment year 2010-11, the Coordinate Benches of the Tribunal has held that the disallowance should be restricted to exempt income earned and not beyond that and accordingly, directed the Assessing Officer to restrict the disallowance to the extent of exempt income earned by the assessee.
4.1 In similar facts and circumstances, the Hon’ble Delhi High Court, in case of Joint Investments Pvt. Ltd. v. CIT 372 ITR 694, decided the issue in favour of the assessee and the head-notes are as under: “Income-Expenditure incurred in relation to income not includible in total income-Disallowance-Assessee was engaged in diverse investment activities and in the course of its business derived income from rent, sale of investments, dividend and interest-For AY 2009- 10, assessee had reported a loss of specified amount-Assessee declared tax exempt income in the form of dividend to the tune of Rs.48,90,000-Assessee volunteered Rs.2,97,440 as attributable u/s14A for the purpose of disallowance-AO on the basis of his own understanding of Rule 8D of the Income Tax Rules disallowed the sum u/s 14A read with Rule 8D-Assessee claimed that the entire tax exempt income of Rs.48,90,000 was lower than the disallowance- CIT(A) and ITAT upheld AO's order-Held, in case of CIT(A) v. Taikisha Engineering India Ltd., it was held by present court that in view of the peculiar wording of Section 14A (2) that computation or disallowance of the assessee, or claim that no expenditure was incurred for earning exempt income should be examined with reference to the accounts and only if the assessee's explanation was unsatisfactory, can the AO proceed further-In the present case, firstly it was not disclosed by the AO that the appellant/assessee's claim for attributing Rs.2,97,440 as a disallowance u/s 14A had to be rejected-Secondly, there appears to have been no scrutiny of the accounts by the AO an aspect which was completely unnoticed by the CIT(A) and the ITAT-Thirdly, an important anomaly which instant court cannot be unmindful of was that whereas the entire tax exempt income was Rs.48,90,000, the disallowance ultimately directed works out to nearly 110 percent of that sum, that is 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 was to be disallowed-The window for disallowance was indicated in Section 14A, and was 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-ITAT as well as the AO and CIT(A) had escaped the mandate of Section 14A(2)-Impugned order of the ITAT was set aside-Question of law was answered in favour of the assessee-Order of the AO was set aside-Initiation of penalty proceedings also was set aside- Matter was remitted to the AO for fresh consideration in accordance with the above directions – Assessee’s appeal allowed.” Under the above facts and circumstances and in view of the above judicial precedents, we set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to restrict the disallowance to the extent the exempt income is earned by the assessee in both the assessment years since the facts are similar. Thus, the ground raised by the assessee in both the assessment years is allowed for statistical purposes.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced on the 21st September, 2017 at Chennai.