2016 (7) TMI 1295 - AT - Income Tax

ITAT Mumbai limits disallowance under section 14A to exempt income amount.

The ITAT Mumbai allowed the appeal in favor of the assessee, directing the Assessing Officer to limit the disallowance under section 14A read with Rule 8D ... Disallowance u/s 14A read with Rule 8D - Held that:- The exempt income surely cannot swallow the entire amount and the disallowance u/s 14A read with Rule 8D cannot exceed the exempt income [SEE Daga Global Chemicals P Ltd (2015 (1) TMI 1204 - ITAT MUMBAI)]. Considering the settled legal position of the issue, we are of the opinion that the disallowance under the said provisions of 14A read with Rule 8D should be restricted to the exempt income. We direct the AO accordingly. - Decided in favour of assessee. Issues:Disallowance of expenditure under section 14A read with Rule 8D of the IT Rules, 1962.Analysis:The appeal was filed against the order of the CIT (A)-9, Mumbai for the assessment year 2009-2010, specifically challenging the disallowance under section 14A read with Rule 8D. The assessee contended that the disallowance made by the Assessing Officer was excessive, amounting to Rs. 12,28,308, whereas the exempt income earned was only Rs. 1,32,433. The assessee argued that as per various judicial decisions, the disallowance under section 14A should not exceed the exempt income. The counsel relied on judgments such as the Hon’ble Delhi High Court case of Joint Investments Pvt Ltd vs. CIT and decisions of different ITAT benches to support this argument.The Revenue, represented by the Ld DR, relied on the orders of the Revenue Authorities. After hearing both parties and examining the relevant legal precedents, including the judgment of the Hon’ble Delhi High Court and decisions of the Tribunal, the ITAT Mumbai concluded that the disallowance under section 14A read with Rule 8D should be limited to the exempt income earned. The tribunal emphasized that the exempt income cannot absorb the entire disallowance amount, as established by previous rulings. Therefore, the ITAT directed the Assessing Officer to restrict the disallowance to the exempt income of Rs. 1,32,433. Consequently, the ground raised by the assessee was allowed, resulting in the appeal being allowed in favor of the assessee.In conclusion, the ITAT Mumbai, comprising D. Karunakara Rao (Accountant Member) and Sanjay Garg (Judicial Member), pronounced the order on 19th July 2016, granting relief to the assessee by restricting the disallowance of expenditure under section 14A read with Rule 8D to the amount of exempt income earned, in accordance with established legal principles and precedents.