2017 (2) TMI 1474 - AT - Income Tax

Tribunal limits disallowance under sec 14A to exempted income, overrules CIT(A).

Maharashtra Agro Industries Development Corp. Ltd. Versus Asstt. Commissioner of Income Tax

The Tribunal partially allowed the appellant's appeal by restricting the disallowance under section 14A to the amount of exempted income, following a ... Disallowance u/s 14A r.w.r. 8D - assessee has earned dividend income - HELD THAT:- As decided in [2016 (11) TMI 1681 - ITAT MUMBAI] as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received dividend income, therefore, there is no question of disallowance by invoking section 14A r.w. Rule 8D under the facts available on record. Also explained by assessee that on identical fact in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income.Disallowance u/s 14A r. w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed. Issues:Challenge to disallowance under section 14A of the Income Tax Act, 1961.Analysis:The appellant contested the disallowance of Rs. 4,22,992 under section 14A for the assessment year 2009-10. The appellant argued that the disallowance exceeded the amount of exempted income, which was only Rs. 20,000. The appellant relied on a Co-ordinate Bench decision in a similar case where it was held that the disallowance cannot surpass the exempted income. The appellant's contention was opposed by the Revenue, stating that the facts differed from the referenced case.The Tribunal examined the case and found that the appellant had earned Rs. 20,000 as dividend income, but the AO disallowed Rs. 4,22,992 under rule 8D. The Tribunal noted that the issue raised by the appellant was similar to the case decided by the Co-ordinate Bench. Referring to the Co-ordinate Bench's decision, the Tribunal directed the AO to restrict the disallowance to the extent of the exempted income, i.e., Rs. 20,000. The Tribunal set aside the CIT(A)'s order and partially allowed the appellant's appeal by directing the deletion of Rs. 4,02,992 out of the total disallowance of Rs. 4,22,992.In conclusion, the Tribunal partially allowed the appellant's appeal by restricting the disallowance under section 14A to the amount of exempted income, following the Co-ordinate Bench's decision and directing the deletion of a portion of the disallowance made by the AO.