Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “SMC” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM]
ORDER This appeal by assessee is arising out of order of CIT(A)-5, Kolkata vide Appeal No. 278/CIT(A)-5/Wd-2(1)/11-12/14-15 dated 29.10.2015. Assessment was framed by ITO, Wd- 2(1), Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2009-10 vide his order dated 30.11.2011.
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in making disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the I. T. Rules, 1962 and also enhanced the income.
I have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that the assessee is an investment company engaged in the business of providing inter-corporate loans and advances to various parties and also making investment in shares to various companies. The assessee company declared interest income of Rs.19,87,953/- and also claimed expenditure of Rs.20,21,997/- out of which claimed expenditure on salary at Rs.18,34,581/-. According to AO, the expenses incurred are attributable to earning exempt income of LTCG on sale of shares of Rs.3,99,3/-. Accordingly, the AO by applying the formula as provided under Rule 8D(iii) of I. T. Rules, 1962 disallowed 0.5% if average value of investment at Rs.8,48,359/-. Aggrieved, assessee preferred appeal before CIT(A), who enhanced the addition by another amount of Rs.5,43,208/- by observing that about 88% of the fund is invested in shares having the potential to yield more exempt income and accordingly, 0.5% is much lower disallowance than the expenses estimated with the exempt income. Accordingly, he made total disallowance at Rs.13,91,567/-. Aggrieved, assessee came in second appeal before Tribunal.
2 RVS Management Ltd., AY 2009-10 4. I find from the facts of the case that assessee has earned only exempt income to the tune of Rs.3933/- and this issue stands covered in favour of assessee and against the revenue by the decision of Hon’ble Punjab & Haryana High Court in the case of Pr. CIT V Empire Package Pvt. Ltd. in ITA No. 45 of 2015 dated 12.01.2016, wherein it has held that the disallowance by invoking the provisions of section 14A read with Rule 8D of I. T. Rules, 1962 can be made only to the extent of exempt income. Hon’ble High Court held that disallowance under Section 14A of the Act requires finding of incurring of expenditure in respect of exempted income and where it is found that for earning exempted income, no expenditure has been incurred, disallowance under section 14A of the Act cannot stand. It is further held that if the assessee had not made any expenditure on earning exempt income, the AO in terms of sub section (2) of Section 14A of the Act was required to collect such material evidence to determine expenditure if any incurred by the assessee in relation to earning of exempt income. In the case before Hon’ble High Court the income from dividend had been shown at Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule 8D of the Rules worked out by the AO came to Rs. 4,09,675/-. Thus, the AO disallowed the entire tax exempt income which is not permissible as per settled position of law. 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”. The disallowance under section 14A read with Rule 8D as worked out by the AO is not in accordance with law and as such working is not sustainable. Hon’ble High Court confirmed the view of Tribunal.
In view of the above facts and precedent cited above, I am of the view, in the given facts that assessee has earned only exempt income to the tune of Rs.3933/-, hence disallowance should be restricted only to the tune of Rs.3933/- only. I order accordingly. The appeal of assessee is partly allowed.
In the result, appeal of assessee is partly allowed. Order pronounced in the open court.