T P ROY CHOWDHURY & COMPANY PVT. LTD.,KOLKATA vs. D.C.I.T., CIRCLE - 7(1), KOLKATA, KOLKATA

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ITA 1268/KOL/2024Status: DisposedITAT Kolkata19 December 2024AY 2015-2016Bench: Shri Sanjay Garg (Judicial Member), Shri Rakesh Mishra (Accountant Member)3 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance under Section 14A cannot exceed the exempt income earned. Considering no borrowed funds were used, a certain percentage of the exempt income was justified for administrative expenses.

What were the facts?

The assessee contested the disallowance of Rs. 10,19,593/- under Section 14A for earning tax-exempt dividend income. The assessee argued that no borrowed funds were used and the dividend income was only Rs. 36,675/-.

What were the issues?

Whether disallowance under Section 14A can exceed the exempt income earned, and the quantum of disallowance when no borrowed funds are used for investment.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “B” BENCH KOLKATA

Before: Shri Sanjay Garg & Shri Rakesh Mishra

आदेश / ORDER

Per Sanjay Garg, Judicial Member :

1.

The captioned appeal has been preferred by the assessee against the order dated 15.05.2024 of the Ld. Commissioner of Income Tax, (Appeal), Addl/JCIT(A)-12, Mumbai [hereinafter referred to as the “Ld. CIT(A)”] passed u/s. 250 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2015-16.

2.

The assessee in this appeal has taken as many as 8 grounds of appeal

. Vide ground nos. 1, 2 and 3, the assessee has agitated the confirmation of the addition of Rs.1,13,369/- being interest u/s. 201(1A) of the Act, which has been held by the lower authorities as not an allowable business expenditure.

3. The Ld. Counsel for the assessee has stated at Bar that he does not press the ground nos. 1 to 3. This has also been separately confirmed vide letter dated 03.09.2024. In view of this, ground nos. 1 to 3 are dismissed being not pressed.

4. Vide ground nos. 4 to 8, the assessee has contested the action of the lower authorities in making/confirming the addition of Rs.10,19,593/- u/s. 14A read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as the “Income Tax Rules”) on account of notional expenditure incurred by the assessee to earn tax exempt dividend income.

5. At the outset, Ld. Counsel of the assessee has submitted that the assessee did not use any borrowed fund to make the investment. That the assessee during the year has earned dividend income only of Rs.36,675/- only. The Ld. Counsel has submitted that no expenditure was incurred by the assessee for making the investments, therefore, no disallowance u/s. 14A of the Act was warranted.

6.

Ld. DR on the other hand, had relied on the findings of the lower authorities.

7.

We have considered the rival submissions and gone through the material available on records. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT 378 ITR 33 (Del.) has held that there being no exempt income earned by the assessee, no disallowance u/s. 14A to be made. The aforesaid proposition has been further confirmed by various Hon’ble High Courts and Tribunal viz., CIT vs. M/s. Holcim India Pvt. Ltd. in and Judgment dt. 5-9-2014, CIT v. Shivam Motors (P.) Ltd. [2015] 230 Taxman 63 and CIT vs. Ashika Global Securities Ltd. (G.A. No. 2122 of 2014) dt. 11/06/2018. Therefore, the disallowance u/s. 14A of the Act cannot exceed the exempt income earned by the assessee of Rs. 36,675/-. Considering the fact that no borrowed funds have been used by the assessee to earn the aforesaid tax exempt income, in our view, a certain percentage of the tax exempt income will be justified in making the disallowance u/s. 14A read with Rule 8D (2) (iii) of the Income Tax Rules on account of administrative expenses. Therefore, disallowance u/s. 14A is restricted to 10% of the dividend income earned of Rs.36,675/- i.e. at Rs.3,667.50. Appeal of the assessee is treated as partly allowed.

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