2021 (1) TMI 1134 - AT - Income Tax

Tribunal limits disallowance to exempt income under Rule 8D(2)(iii)

The Tribunal held that the disallowance under Rule 8D(2)(iii) cannot exceed the exempt income earned by the assessee. Therefore, the Tribunal deleted the ... Disallowance u/s 14A r.w.r. 8D - assessee has suo-moto disallowed an amount - whether the disallowance under Rule 8D(2)(iii) is to be restricted to the extent of exempt income i.e. dividend income earned by assessee or the disallowance as suo-moto computed by assessee? - HELD THAT:- As gone through the decision of Hon’ble Supreme Court in the case of Maxopp Investments Ltd [2018 (3) TMI 805 - SUPREME COURT] wherein as categorically held that the disallowance cannot exceed the exempt income. Hence, we delete the suo-moto disallowance made by assessee at ₹ 5,86,52,973/- and restricted the disallowance to the extent of exempt income claimed by assessee at ₹ 13,17,233/-. We direct the Assessing Officer accordingly. Appeal of assessee is allowed. Issues:- Disallowance under Section 14A of the Income Tax Act, 1961.Analysis:1. The appeal arose from the order of the Commissioner of Income Tax (Appeals)-52, Mumbai, regarding the disallowance under Section 14A of the Act. The assessment for the year 2015-16 was framed by the DCIT, Central Circle-4(2), Mumbai. The only issue in this appeal was against the order of CIT(A) restricting the disallowance computed by the assessee at a certain amount against the exempt income earned by the assessee.2. The Assessing Officer invoked the provisions of Section 14A of the Act r.w.r 8D of the Income Tax Rules, 1962, and made a total disallowance of a specific amount. The assessee appealed before the CIT(A) challenging the disallowance. The CIT(A) deleted a portion of the disallowance but confirmed a specific amount as administrative expenses against the exempt income claimed by the assessee. The CIT(A) relied on the decision of the Hon'ble Supreme Court in a particular case.3. The Tribunal considered whether the disallowance under Rule 8D(2)(iii) should be restricted to the extent of the exempt income earned by the assessee or the amount computed by the assessee. Referring to the Supreme Court decision, the Tribunal held that the disallowance cannot exceed the exempt income. Consequently, the Tribunal deleted the disallowance made by the assessee and restricted the disallowance to the extent of the exempt income claimed by the assessee. The Assessing Officer was directed accordingly.4. The Tribunal's decision was based on the interpretation of the law and relevant precedents, ensuring that the disallowance under Section 14A was in line with the exempt income earned by the assessee. The appeal of the assessee was allowed, and the order was pronounced on 11th January 2021.