2015 (11) TMI 1667 - AT - Income Tax

Tribunal limits disallowance to exempt income, directs specific Rule 8D calculation for partial appeal allowance.

The Tribunal limited the disallowance under section 14A to the exempt income, reducing the amount for the assessee. It directed the Assessing Officer to ... Disallowance under section 14A computation - total exempt income earned by the present assessee is ₹ 13,35,040 against which an addition of ₹ 21,87,713 has been made by AO u/s 14A - Held that:- As noted in the case of Joint Investment (P) Ltd. vs CIT (2015 (3) TMI 155 - DELHI HIGH COURT) the disallowance u/s 14A should not exceed the exempt income. The Tribunal also noted that the Hon’ble Delhi high Court in the case of CIT vs Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT ) held that there can be no disallowance u/s 14A in the absence of any exempt income. Thus the disallowance should not exceed the exempt income during the relevant financial period. In the present case, since the total exempt income of the assessee is ₹ 13,35,040 and the assessee had suo moto offered disallowance of ₹ 1,81,388 under Rule 8D(2)(iii) of the Income Tax Rules, 1962 being 0.5% of the average value of the investment in the shares of Apollo Tyres Ltd. on which such dividend income was earned. Hence, we direct the Assessing Officer that the disallowance u/s 14A be restricted to ₹ 11,53,752 (Rs. 13,35,040 – ₹ 1,81,388) and the remaining amount of disallowance is directed to be deleted. - Decided partly in favour of assessee. Issues:1. Disallowance under section 14A exceeding the amount of dividend income received by the assessee.2. Correct calculation of disallowance under Rule 8D.Analysis:Issue 1: The appeal was against the order of the CIT(A) regarding the disallowance under section 14A, which exceeded the dividend income received by the assessee. The assessee contended that the disallowance should not exceed the exempt income. The Tribunal referred to a similar case involving the assessee's group company where the disallowance was restricted to the exempt income. The Departmental Representative acknowledged this restriction in similar circumstances. The Tribunal cited relevant judgments stating that the disallowance under section 14A should not surpass the exempt income. Consequently, the disallowance for the present assessee was limited to the exempt income, leading to a reduced disallowance amount.Issue 2: The Tribunal examined the correct calculation of disallowance under Rule 8D. The assessee had offered a suo moto disallowance under Rule 8D(2)(iii) based on a percentage of the average value of investments. The Tribunal directed the Assessing Officer to restrict the disallowance under section 14A to a specific amount, considering the total exempt income and the offered disallowance under Rule 8D(2)(iii). As a result, the Tribunal partly allowed the appeal, reducing the disallowance amount and deleting the excess disallowance. The judgment emphasized that the disallowance should not exceed the exempt income and provided specific calculations for the revised disallowance amount.In conclusion, the Tribunal's decision in this case clarified the principles governing the disallowance under section 14A, ensuring that it does not exceed the exempt income. The judgment also addressed the correct computation of disallowance under Rule 8D, providing a detailed analysis and specific directives for the Assessing Officer.