DCIT, CHENNAI vs. SUNDARAM CLAYTON LTD., CHENNAI

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ITA 2611/CHNY/2014Status: DisposedITAT Chennai22 January 2015AY 2007-084 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that for the assessment year in question, disallowance under Section 14A should be made in a reasonable manner, and a 2% of dividend income is justified as per jurisdictional High Court precedent. Since the assessee's own disallowance exceeded this amount, it was restricted to the assessee's self-disallowed amount.

What were the facts?

The assessee earned dividend income of Rs. 15.72 Crores. The Assessing Officer made a disallowance under Section 14A, which was restricted by the CIT(Appeals). The Revenue appealed this restriction, and the assessee cross-objected, seeking to sustain the disallowance made by itself.

What were the issues?

The primary issue was the quantum of disallowance under Section 14A for dividend income, particularly for assessment year 2007-08, before the mandatory application of Rule 8D.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, CHENNAI

Before: SHRI B.R. BASKARAN & SHRI VIKAS AWASTHY

For Respondent: Shri R. Vijayaraghavan, Advocate
Hearing: 22.01.2015Pronounced: 22.01.2015

Heard together (2 matters)

ITA No. 2611/Mds/2014
C.O. No. 136/Mds/2014

Read from the judgment's own cause title. This page is filed under one of them.

आदेश /O R D E R

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

1.

The appeal filed by the Revenue and the cross-objection filed by the assessee are directed against the order dated 30.07.2014, passed by Ld. Commissioner of Income Tax (Appeals)- VI, Chennai and relate to assessment year 2007-08. Both the CIT(Appeals) in respect of disallowance made under Section 14A of the Income-tax Act, 1961 (in short 'the Act').

2.

The Ld.counsel appearing for the assessee submitted that the assessee had earned a dividend income of `15.72 Crores. The Assessing Officer originally computed disallowance as per Rule 8D of Income-tax Rules, 1962. However, the Tribunal set aside the matter to the file of the Assessing Officer since it held that the provisions of Rule 8D shall be applicable from assessment year 2008-09 onwards only. In the set aside proceedings, the Assessing Officer computed the disallowance at `3.96 Crores. In the appellate proceedings, the Ld. CIT(Appeals) restricted the disallowance to `40,53,203/-.

3.

The Ld. counsel submitted that the assessee had itself disallowed a sum of `33,56,354/-. The Revenue has filed the appeal challenging the order of the Ld. CIT(Appeals) and assessee has filed the cross-objection with a prayer that addition should be sustained to the extent of disallowance made by the assessee.

4.

The Ld. counsel submitted that upto assessment year 2007- 08, Rule 8A was not applicable and hence disallowance is required to be made in a reasonable manner. The Ld. counsel further identical issue in the case of M/s Simpson & Co. Ltd. v. DCIT in Tax Case (Appeal) No.2621 of 2006 dated 15.10.2012 wherein the Hon'ble High Court upheld the view of the ITAT that the disallowance should be made at 2% of the dividend income earned by the assessee. The Ld. counsel submitted that the 2% of dividend income earned by the assessee works out to less than the amount of ` 33,56,354/- disallowed by the assessee. Accordingly, he prayed that the addition under Section 14A should be sustained to the extent of disallowance made by the assessee.

5.

The Ld. D.R. did not dispute the factual aspects submitted by the Ld. counsel.

6.

Since Hon'ble Madras High Court has held in the case of M/s Simpson & Co. Ltd. (supra) that the disallowance be made at 2% of dividend income under Section 14A is justified and since the disallowance made by the assessee works out to more than 2% of the dividend income, we are of the view that the disallowance under Section 14A should be restricted to the amount disallowed by the assessee on its own. Accordingly, we modify the order of the Ld. CIT(Appeals) and direct the Assessing Officer to restrict the disallowance to ` 33,56,354/- as disallowed by the assessee.

7.

In the result, the appeal filed by the Revenue is dismissed and the cross-objection filed by the assessee is allowed.

Order pronounced in the open court after conclusion of hearing on the 22nd day of January, 2015 at Chennai.

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