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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of CIT (A)-13, Mumbai in appeal No. CIT (A)-12/ACIT 6(3)/IT-10/2013-14 dated 19-12-14. The Assessment was framed by ACIT-6(3), Mumbai for the AY 2010-11 vide order dated 11-03-2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of the assessee is against the order of the CIT (A) confirming the action of the AO in disallowing the expenses relatable to exempted income u/s 14 A of the Act. For this assessee has raised following two grounds:-
“1. On the facts and circumstances of the case and in law the AO erred in making a disallowance u/s 14A amount to Rs. 5,25,322/-. 2. i) On the facts and circumstances of the case and in law the AO and CIT (A) erred rejecting the revised return filled by Appellant. ii) the above ground may please be set aside to the CIT(A) or AO, as the grounds was not pressed before the CIT (A) due to miss communication between the appellant and its authorized representatives.”
Briefly stated facts are that the AO noticed during the course of assessment proceedings that the assessee has received dividend income amounting to Rs. 20,000/- and claimed the same as exempt. According to AO the assessee has incurred expenditure but no disallowance is made while claiming the exempt income. Accordingly, he computed the disallowance by invoking the provisions of section 14 A of the Act r.w.s rule 8 D of the Income Tax Rules, 1962 (hereinafter ‘the rules’). Accordingly he disallowed a sum of Rs. 5,25,322/. Aggrieved, assessee preferred appeal before CIT (A), who also confirmed the action of the AO in disallowing the expenses relatable to exempted income. Aggrieved, now, assessee is in second appeal before Tribunal.
I have heard rival contentions and gone through facts and circumstances of the case. Admittedly, the only exempted income earned by assessee on account of dividend is Rs. 20,000/-. I find that this issue is covered in favour of assessee as far as restricting the disallowance to the extent of exempted income only and for this I am placing reliance on the Co-ordinate Bench decision in the case of Daga Global Chemicals Pvt. Ltd. Vs. ACIT dated 01-01-2015 in for the assessment year 2009-10, wherein it has been held in Para 2.2 as under:- “2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a limited company, engaged in trading of bulk and fine, chemicals, solvent and pharmaceutical raw materials declared its 4 M/s Daga Global Chemicals Pvt. Ltd, . income at Rs.74,40,000/- on 26/09/2009. The assessee credited dividend income of Rs.1,82,262/- in its profit and loss account. The Assessing Officer while framing the assessment invoke section 14A r.w. Rule 8D by contending that assessee claimed various expenses which are related to exempt income in its profit & loss account and disallowed Rs.14,58,412/-. On appeal, before the ld. Commissioner of Income tax (Appeals) broadly the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received Rs.1,82,362/- as dividend income, therefore, there is no question of disallowance of Rs.14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the ld.
counsel for the assessee that on identical fact in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income. At best, if any disallowance could be made that can be restricted to Rs. 1,485/- which were claimed as demat charges. Disallowance u/s 14A r. w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed”. I find that this issue is covered by the Coordinate Bench decision in the case of Daga Global Chemicals Pvt. Ltd. (supra). Respectfully following the same, I direct the AO to restrict the disallowance at Rs.20,000/- and hence, this issue of the assessee’s appeal is partly allowed. My view is fortified by the recent decision of Hon’ble Delhi High Court in the case of Cheminvest Limited v. CIT 378 ITR 33(Delhi).
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 04-11-2016.