| COURT: | ITAT Mumbai |
| CORAM: | C. N. Prasad (JM), Rajesh Kumar (AM) |
| SECTION(S): | 14A, Rule 8D |
| GENRE: | Domestic Tax |
| CATCH WORDS: | Disallowance u/s 14A & Rule 8D |
| COUNSEL: | G. S. Pikale |
| DATE: | October 31, 2017 (Date of pronouncement) |
| DATE: | December 30, 2017 (Date of publication) |
| AY: | 2012-13 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 14A/ Rule 8D: By no stretch of imagination can s. 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. Also, the disallowance cannot exceed the exempt income | |
(i) The Assessing Officer computed the disallowance u/s. 14A r.w. Rule 8D at Rs.38,43,918/- and the Ld. CIT(A) recomputed the disallowance at Rs.5,10,601/- which comprises of Rs.3,42,870/- under Rule 8D(2)(ii) and Rs 1,67,731/- under Rule 8D(2)(iii). This calculation of the Ld.CIT(A) appears to be proper and justified.
(ii) Further, it has been held in various cases that the disallowance u/s. 14A r.w. Rule 8D cannot exceed the exempt income. The Hon’ble Punjab and Haryana High Court in the case of Principal Commissioner of Income Tax-I v. M/s Empire Package Pvt. Ltd in ITA.No. 415 of 2015 dated 12.01.2016, dismissed the appeal of the Revenue holding that there is no substantial question of law arise in the appeal on the following question raised by the Revenue: –
“Whether in the facts and circumstances of the case, the Hon’ble ITAT is justified in law to hold that the disallowance made under section 14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule?”
The Hon’ble High Court affirmed the order of the ITAT in holding that the disallowance u/s. 14A r.w. Rule 8D as worked out by the Assessing Officer is not in accordance with law for the reason that Assessing Officer has disallowed entire tax exempt income and this is not permissible in view of the judgment of the Hon’ble Delhi High Court.
(iii) The Hon’ble Delhi High Court in the case of Joint Investment Private Limited in ITA.No. 117/15 dated 25.02.2015 held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed.
(iv) Further, we find that considering the above two decisions the Coordinate Bench in the case of Sanghavi Exports International P. Ltd v. ACIT in ITA.No.3405/Mum/2015 dated 10.07.2017 held that disallowance should not be more than the dividend income by observing as under: –
“4. We have perused the Assessment Order and find that the assessee earned exempt income of Rs. 1,70,000/- only during this Assessment Year and the Assessing Officer by invoking the provision of Section 14A made disallowance at Rs.54,66,813/-. The Hon’ble Delhi High Court in the case of Joint Investment Private Limited in ITA.No. 117/15 dated 25.02.2015 held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. Similarly, Punjab and Haryana High court in the case of PCIT v. Empire Package Private Limited in ITA.No. 415/2015 held that disallowance should not exceed exempt income. In the case on hand since the assessee received dividend income of Rs.1,70,000/- as recorded in the Assessment Order the disallowance should not be more than Rs.1,70,000/-. Thus we direct the Assessing Officer to restrict the disallowance to the extent of dividend income i.e. Rs.1,70,000/- and delete the balance amount and compute the incomes accordingly.”
(v) Thus, respectively following the said decisions, we direct the Assessing Officer to restrict the disallowance u/s. 14A r.w. Rule 8D to the extent of dividend income of Rs.1,83,000/- received for the Assessment Year 2012-13 and compute the income accordingly.
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