SHRI GOPAL PRASAD AGRAWAL,RAIPUR vs. INCOME TAX OFFICER, WARD 2(2), RAIPUR, RAIPUR

O R D E R

Per Arun Khodpia, AM :

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining disallowance of Rs. 5,72,606/- made under section 14A r/w Rule 8D, contrary to the provisions of the Income Tax Act, 1961 therefore, the said order is bad in law, unwarranted and deserves to be deleted.

2. On the facts and circumstances of the case, the order of the Ld. CIT(A) is bad, both in the eyes of Law and on facts, having been passed without abiding by the judicial precedents of the Hon'ble Apex Court/High Court which categorically state that disallowance under section 14A should not be invoked when no exempt income was earned during the year and moreover the disallowance, if any, at best ought to be restricted to amount of exempt income for the said assessment year.

3. On the facts and circumstances of the case, the order of the Ld. CIT(A) is bad in Law, having been passed in a mechanical manner without recording his satisfaction as mandated by Section 14A r/w Rule 8D of the Income Tax Act, 1961.

4. The above grounds are independent and without prejudice to one and another.

5. The appellant craves leave to urge, add, amend, alter, enlarge, modify, substitute, delete or withdraw any of the ground or ground and to adduce fresh evidence at the time of hearing of the appeal. 2. The sole controversy raised in the appeal is regarding the addition made by the AO for Rs.5,72,606/- by invoking provisions of Section 14A of the Act, r.w.R.8D of the IT Rules, 1962 regarding disallowance of interest of Rs.5,21,098/- and half percent of the aforesaid investment towards administrative expenses amounting to Rs.51,508/- in aggregating the total disallowance was Rs.5,72,606/-. 3. Dissatisfied with the said disallowance, the assessee preferred an appeal before the ld. CIT(A) but the contention of the assessee was rejected and the addition made by the ld. AO was confirmed by the ld. CIT(A). 4. The assessee assailed this issue before us by filing the present appeal. 5. Ld. AR submitted that since there was no exempted income earned by the assessee during the relevant assessment year, therefore, as per the settled legal position no disallowance/addition can be made u/s.14A r.w.rule 8D. It was further submitted by the ld. AR that by overshight while preparing the return of income an amount of Rs.2990/- was put as exempted income i.e. dividend from shares, therefore, even if a disallowance is made the same may kindly be restricted to Rs.2990/- only. To support his contentions, ld. AR relied on the following case laws :-

3 i) Pr.CIT Vs. Oil Industry Development Board, [2019] 103 taxmann.com 326 (SC), wherein the Hon’ble Supreme Court has held as under: Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Applicability of) - In course of appellate proceedings, Tribunal held that in absence of any exempt income, disallowance under section 14-A of any amount was not permissible - High Court upheld order passed by Tribunal - Whether, on facts, SLP filed against decision of High Court was to be dismissed - Held, yes [Para 3] [In favour of assessee] ii) Pr.CIT Vs. State Bank of Patiala, [2018]; 99 taxmann.com 286 (SC); wherein the Hon’ble Supreme Court has held as under :- Section 14A, read with section 263, of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Computation of) - Assessment year 2010-11 - In course of assessment, Assessing Officer made addition on account of apportionment of expenses against exempted income under section 14A - Commissioner passed a revisional order directing Assessing Officer to enhance amount of addition under section 14A - Tribunal set aside revisional order as well as consequent assessment order passed by Assessing Officer enhancing addition made under section 14A - High Court upheld order of Tribunal holding that amount of disallowance under section 14A could be restricted to amount of exempt income only and not a higher figure - Whether on facts, SLP filed against decision of High Court was to be dismissed - Held, yes [Para 1 ][l n favour of assessee] iii) Pr.CIT Vs. Reliance Chemotex Industries Ltd., [2022] 138 taxmann.com 199 (Calcutta), wherein the hon’ble High Court has held as under :- Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (General) - Assessment year 2010-11 - Whether disallowance under section 14A cannot exceed exempt income - Held, yes [Para 5] [In favour of assessee] iv) Pr.CIT Vs. Empire Package (P.) Ltd., [2017] 81 taxmann.com 198 (Punjab & Haryana), wherein the Hon’ble High Court has held as under :- Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Extent of disallowance) - Assessment year 2009-10 - Disallowance of entire 4 tax exempt income under section 14A is not permissible [In favour of assessee] 6. On the other hand, ld. Sr. DR vehemently supported the orders of the authorities below.