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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
ORDER Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A)-3, Kolkata vide Appeal No. 2117/CIT(A)-3/W-7(4)/14-15/Kol dated 25.05.2016. Assessment was framed by ITO, Wd- 7(4), Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2012-13 vide his order dated 24.02.2015.
The only issue to be decided in this appeal of assessee is as to whether the disallowance u/s. 14A of the Act could exceed the exempt income derived by the assessee.
2.1. The brief facts of this addition is that the AO observed that the assessee had substantial amount invested in shares and assessee was also in receipt of dividend income of Rs.102/-. The AO invoked the provisions of Rule 8D of the I. T. Rules and made disallowance u/s. 14A of the Act to the tune of Rs.9,15,508/-. In first appeal, the Ld. CIT(A) by placing reliance on the decision of this Tribunal in the case of REI Agro Ltd. Vs. DCIT reported in 35 taxman.com 404 directed the AO to calculate .5% of average value of Crawford Plantation Pvt. Ltd, AY 2012-13 investment that yielded dividend income to be considered for disallowance u/s. 14A of the Act.
2.2. Aggrieved, the assessee is in appeal before us on the following ground:
“1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in directing the assessing officer to recomputed disallowance under section 14A read with rule 8D(2)(iii) at the rate of 0.50% of average value of only those investments that yielded exempted income, without giving a direction that such disallowance of expenditure cannot exceed the amount of exempt income i.e. Rs.102/-.”
2.3. None appeared on behalf of the assessee. The Ld. DR vehemently argued that disallowance is to be restricted at 0.5% of average value of investment yielding dividend income and there is no provision in the Act which says that the disallowance should not exceed exempt income. In support of this, he placed reliance on the decision of ITAT, Mumbai Bench in the case of Sanchayita Mercantile (P) Ltd. Vs. ACIT (2008) 25 SOT 57 (Mum).
2.4. We have heard rival submissions and gone through the facts and circumstances of the case. The facts stated hereinabove remained undisputed and hence, the same are not reiterated for the sake of brevity. We find that the provisions of section 14A of the Act are very clear in considering expenditure which were incurred for earning any income which do not form part of total income. So going by the plain language of the section it could be safely concluded that the legislature intended only to disallow the expenditure that were incurred for earning exempt income. The legislature never intended to disallow the expenditure which is more than the exempt income derived by the assessee. We also draw support from the decision of the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. Vs. CIT reported in (2015) 372 ITR 694 wherein it has been held that the Crawford Plantation Pvt. Ltd, AY 2012-13 disallowance u/s. 14A of the Act cannot exceed the exempt income. Respectfully following the said decision, we direct the AO to restrict the disallowance u/s. 14A of the Act to Rs.102/- and allow the ground of appeal raised by the assessee.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 30.11.2016