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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: SH. SAKTIJIT DEY & SH. N. K. BILLAIYA
PER N. K. BILLAIYA, AM: This appeal by the assessee is preferred against the dated 29.07.2021 by NFAC, Delhi pertaining to A.Y. 2017-18.
The solitary grievance of the assessee is that the CIT(A) erred in confirming the disallowance of Rs.11,31,924/- u/s. 14 r.w.s. 8D of the Act thereby sustaining the addition of Rs.565962/-.
The appeal is late by 566 days the assessee has filed an application for condonation of delay supported by the affidavit of one Rajat Garg who was responsible for handling the income tax matter of the assessee.
We have given a thoughtful consideration to the reasons mentioned in the application for the condonation of the delay supported by the affidavit. We are of the considered opinion that the assessee was prevented by reasonable and sufficient cause for not filing the appeal within the period of limitation, therefore, in the interest of justice the delay is condoned.
Coming to the merits we find that during the year the assessee has earned dividend income of Rs.1615/- which was claimed as exempt u/s. 10 of the Act. The assessee suo-moto disallowed a sum of Rs.565962/- u/s. 14A of the Act.
However, invoking the rule 8D the AO computed the disallowance at Rs.11,31,924/- and after deducting the disallowance made by the assessee the AO made the addition of Rs.565962/-.
The assessee agitated the matter before the CIT(A) but without any success.
Before us the Counsel for the assessee vehemently stated that the exempt income is only Rs.1615/- and following the decision the Hon’ble Jurisdictional High Court the disallowance should not have exceeded the exempt income yet the assessee suo-moto disallowed Rs.565962/-, therefore, further disallowance by the AO is unwarranted. It is the say of the Counsel that even the suo-moto disallowance need to be deleted. Strong reliance was placed on the decision of the coordinate Bench in IT(TP)A No.2310/Bang/2019 order dated 28.10.2021.
Per contra the DR strongly supported the findings of the AO. It is the say of the DR that the AO has followed the provisions of section 14A r.w.r. 8D read with the relevant circular of the CBDT hence action of the AO cannot be faulted with.
We have carefully considered the orders of the authorities below. The undisputed fact is that the exempt income of the assessee is Rs.1615/- only, therefore, in the light of the decision of the Hon’ble Delhi High Court in the case of Caraf Builders and Construction 414 ITR 122 the disallowance should not exceed the exempt income.
The AO is accordingly directed to restrict the disallowance of Rs.1615/- only.
In so far the suo-moto disallowance of Rs.565962/- is concerned the coordinate Bench in the case of GMR Enterprises Private Limited (supra) following the decision of the Hon’ble Madras High Court in the case of M/s. Marg Limited Vs. CIT in Tax Appeal Nos. 41 to 43 and 220 of 2017 held as under :-
“3.6 However, in this case, the assessee had made disallowance of Rs. 145,02,09,668 voluntarily while filing the return of income. In this context, it is important to refer to the judgment of the Hon'ble Madras High Court in the case of M/s. Marg Limited v. CIT in Tax Case Appeal Nos.41 to 43 & 220 of 2017 (judgment dated 30.09.2020). The Hon'ble Madras High Court followed the judgment of the Hon'ble Karnataka High Court in the case of Pargathi Krishna Gramin Bank v. JCIT (2018) 95 taxman.com 41 (Kar.)]. In the case considered by the Hon'ble Madras High Court, the assessee therein had made voluntarily disallowance u/s 14A of the I.T.Act more than the dividend income earned and the Tribunal confirmed the disallowance made u/s 14A of the I.T.Act. However, the Hon'ble Madras High Court held that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year. The relevant finding of the Hon'ble Madras High Court reads as follow:- "20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyond the exempted income in the particular year, namely AY 2009-10, as against the dividend income of Rs.41,042/- and the Assessee himself
computed disallowance under Rule 8D of the Rules to the extent of Rs.2,38,575/-, which was increased to Rs.98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs.8,50,000/-, which was Increased to Rs.2,61,96,790/-.. 21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank(2018) 95 Taxman.com 41 (Kar.) decided by Karnataka High Court. The legal position, as Interpreted above by various judgments and again reiterated by us in this judgment. remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per Rule SD only after recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure under Section 14A made by the Assessee or his claim that no expenditure was incurred is validly rejected by the Assessing Authority by recording reasonable and cogent reasons conveyed to Assessee
and after giving opportunity of hearing to the Assessee in this regard. 22. We, therefore, dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under Rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assesee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D of the Income Tax Rules, 1962." 3.7 In view of the above judgment of the Hon'ble Madras High Court in the case of M/s. Marg Limited v. CIT (supra), it is clear that the disallowance u/s 14A of the 1.T.Act cannot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s. 14 A of the IT Act while filing the return of income. Therefore, the AO is directed to restrict the disallowance u/s. 14A of the IT Act toRs.27,37,47,187/-.”
Respectfully following the above we direct the AO to delete the disallowance and restrict the same to Rs.1615/- only.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court 22.12.2023.
Sd/- Sd/- (SAKTIJIT DEY) (N. K. BILLAIYA) VICE PRESIDENT ACCOUNTANT MEMBER *NEHA* Date:- .12.2023 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI