EG 53 GOBI AND SATHY TKRD LOCAL BODIES DEPT NMS EMPLS COOP THRIFF AND CS LIMITED,GOBICHETTIPALAYAM vs. INCOME TAX OFFICER, ERDOE

This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2018-19, vide order dated 08.11.2023.

At the outset, it is noticed that the only issue in this appeal is as regards to disallowance of expenses relatable to :-2-: ITA. No: 1556/Chny/2023 exempt income u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) r.w.r. 8D of Income-tax Rules, 1962 (hereinafter referred to as “the Rules”) for an amount of Rs. 6,02,100/-. None is present from the assessee side despite of service of notice. However, on behalf of revenue, ld. Sr. DR. Shri. D. Hema Bhupal, JCIT has appeared.

We have heard the ld. Sr. DR and gone through facts and circumstances of the case. The brief facts of the case are that, the Assessing Officer framed assessment and made disallowance of expenses relatable to exempt income amounting to Rs. 6,02,100/-. The assessee also earned dividend income of Rs. 3,90,975/-. The assessee claims this dividend income as exempt. No expenditure in respect of earning of exempt income has been disallowed by assessee suo moto while computing its total income for the year under consideration. The Assessing Officer, while framing assessment applied Rule 8D(2)(ii) and 8D(2)(iii) of the Rules, and computed disallowance of expenses relatable to exempt income to the extent of Rs. 6,02,100/-. Aggrieved, assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A), has dismissed the assessee’s grounds despite the fact that the :-3-: ITA. No: 1556/Chny/2023 assessee has earned dividend income of Rs. 3,90,975/-. Aggrieved, assessee came in appeal before us.

After hearing ld. Sr. DR and going through facts, we noticed that the assessee has earned dividend income of Rs.3,90,975/- and the relevant assessment year involved is 2018-19 i.e., before amendment. It means that disallowance can be restricted to the extent of exempt income only and not beyond that and further relied upon the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd vs CIT [2018] 402 ITR 640 (SC), wherein it has held as under: “32) In the first instance, it needs to be recognised that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee “in relation to income which does not form part of the total income under this Act”. Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.”