2019 (1) TMI 1555 - AT - Income Tax

Tribunal limits disallowance under section 14A, upholds interest charges.

The Tribunal partly allowed the appeals of the assessee for assessment years 2012-13 and 2013-14. The disallowance under section 14A was restricted to the ... Disallowance u/s. 14A of the Act r.w.r. 8D - disallowance cannot exceed the exempt income - HELD THAT:- Hon'ble Delhi High Court in the case of Joint Investments (P) Ltd. v. CIT [2015 (3) TMI 155 - DELHI HIGH COURT] has taken the view that disallowance u/s. 14A cannot exceed the exempt income. Similar view was expressed by the Hon'ble Delhi High Court in the case of CIT v. Holcim India Pvt. Ltd., [2014 (9) TMI 434 - DELHI HIGH COURT] . These decisions were considered by the Mumbai Bench of the Tribunal in the case of Future Corporate Resources Ltd v. ACIT  [2017 (9) TMI 805 - ITAT MUMBAI] relating to AY 2011-12 and it was held by the Tribunal Mumbai Bench that disallowance u/s. 14A of the Act cannot exceed the exempt income. Following the aforesaid decisions, we hold that disallowance u/s. 14A in the present case should be restricted to the exempt income earned by the assessee. Charging of Interest u/s 234B, 234C and 234D - HELD THAT:-  The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon’ble Apex Court in the case of Anjum H. Ghaswala [2001 (10) TMI 4 - SUPREME COURT] and I therefore uphold the action of the AO in charging the assessee the said interest. The AO is, however, directed to re-compute the interest chargeable u/s 234B, 234C and 234D of the Act, if any, while giving effect to this order. Issues:Disallowance of expenses under section 14A of the Income Tax Act for assessment years 2012-13 and 2013-14.Charging of interest under sections 234B, 234C, and 234D of the Act.Analysis:1. Disallowance of Expenses under Section 14A:The assessee, engaged in the business of manufacturing automobile leaf springs, earned dividend income claimed exempt under section 10(34) of the Income Tax Act for the years 2012-13 and 2013-14. The Assessing Officer (AO) sought to disallow expenses incurred in earning exempt income under section 14A of the Act. The AO computed disallowances under Rule 8D(2)(ii) and (iii) of the Income-Tax Rules for both years. The CIT(Appeals) upheld the disallowance made by the AO. However, the Tribunal held that disallowance under section 14A should not exceed the exempt income earned by the assessee. Therefore, the disallowance was restricted to the exempt income of Rs. 51,000 earned by the assessee, as per various judicial precedents cited.2. Charging of Interest under Sections 234B, 234C, and 234D:The assessee disputed the charging of interest under sections 234B, 234C, and 234D of the Act. The Tribunal noted that charging of interest under these sections is mandatory, and the AO has no discretion in the matter. Citing the decision of the Hon'ble Apex Court in the case of Anjum H. Ghaswala, the Tribunal upheld the AO's action in charging interest to the assessee. However, the AO was directed to re-compute the interest chargeable under these sections, if any, in accordance with the Tribunal's order.In conclusion, the Tribunal partly allowed the appeals of the assessee for assessment years 2012-13 and 2013-14. The disallowance under section 14A was restricted to the exempt income earned by the assessee, and the charging of interest under sections 234B, 234C, and 234D was upheld, with directions to the AO for re-computation if necessary.