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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Waseem Ahmed & Shri Soundararajan K.
O R D E R Per Bench This appeal filed by the assessee is directed against the order of the CIT(A)-5, Mumbai dated 21.02.2024 for Assessment Year (AY) 2012-13.
The only issue raised by the assessee is that the learned CIT(A) erred in confirming the order of the Assessing Officer (AO) by sustaining the disallowance of Rs. 2,87,000/- under the provisions of section 14A r.w. rule 8D of I.T. Rules.
The AO, during the assessment proceedings, found that the assessee has earned dividend income amounting to Rs.9,600/- which was claimed as exempted u/s 10(34) of the Act. Similarly, there was an average investment shown by the assessee in its books Vam Group Hi-Tech Engineering Pvt. Ltd. of account amounting to Rs. 66,33,000/- and an average value of the assets to the tune of Rs. 3,86,60,707/- only. However, the AO found that the assessee has not made disallowance of the expenses corresponding to the said dividend income. Accordingly, the AO invoked the provisions of section 14A r.w. rule 8D of Income Tax Rule and made disallowance of Rs. 2,87,740/- only which was added to the total income of the assessee. On appeal the learned CIT(A) confirmed the order of the AO.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned A.R. before us submitted that the assessee has earned dividend income to the tune of Rs. 9,600/- only and the disallowance therefore cannot exceed the sum of Rs. 9,600/- only under section 14A r.w. rule 8D of Income Tax Rule.
On the other hand, the learned Sr. DR vehemently supported the orders of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record.Admittedly, the assessee in the year under dispute has claimed exempted income of Rs. 9,600/- only whereas the revenue made corresponding disallowances of expenditure under section 14A of the Act read with rule 8D of IT rule for Rs. 2,87,740/-. The question arises whether the amount of disallowancecomputed under section 14A of the Act in accordance with rule 8D of IT Rule can exceed the amount of exempted income claimed by the assessee. This question has been answered by various Hon’ble Courts that the amount of disallowance cannot exceed the amount of exempted income claimed in the return of income. One such judicial pronouncement is of Hon’ble Delhi High Court in the case PCIT vs. Devata Tradelink Ltd reported in 157 taxmann.com 269 wherein it was held as under:
Vam Group Hi-Tech Engineering Pvt. Ltd.
6. In a series of judgments it has been held that the disallowance under section 14A of the Act read with rule 8D of the Rules cannot exceed the exempt income. In this regard, it would be useful to extract the observations made in Joint Investments (P.) Ltd. v. CIT 2015:DHC:1804-DB:/[2015] 59 taxmann.com 295/233 Taxman 117/372 ITR 694 (Delhi). "9. ….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. 48,90,000/-, 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." [Emphasis is ours] 7. Therefore, to our minds, the addition made by the AO, which was sustained by the CIT(A), was wholly unsustainable and thus, according to us, the Tribunal correctly deleted the addition. 7.1 In view of the above discussion we hereby set aside the finding of the learned CIT-A and direct the AO to restrict the amount disallowance to the extent of exempted income i.e. Rs. 9,600/- claimed by the assessee.Hence, the ground of appeal of the assessee is hereby partly allowed.
In the result, the appeal filed by the assessee is hereby partly allowed.
Order pronounced on 26th September, 2024 under Rule 34 of The Income Tax 9. (Appellate Tribunal) Rules, 1963.