2019 (5) TMI 1051 - AT - Income Tax

Tribunal limits disallowance under Section 14A to exempt income amount, citing legal precedents.

Shri Harish M. Kukreja Versus The Income-tax Officer Ward – 7 (3), Ahmedabad

The Tribunal partially allowed the Assessee's appeal, holding that disallowance under Section 14A cannot exceed the amount of exempt income. The Tribunal ... Disallowance of interest computed in terms of Rule 8D(2)(ii) u/s 14A - ex parte order passed by the CIT(A) - HELD THAT:- We find merit in the plea raised on behalf of the assessee that the disallowance under s.14A cannot surpass the quantum of exempt income in view of the long line of judicial precedents prevailing in this regard including the decision referred and relied upon by the assessee in State Bank of Patiala [2017 (5) TMI 843 - PUNJAB AND HARYANA HIGH COURT] against which the SLP of the Revenue stands dismissed by the Hon’ble supreme Court of India [2018 (10) TMI 509 - SC ORDER]. Accordingly, we set aside the order of the CIT(A) in this regard and direct the AO to restrict the disallowance to the extent of the exempt income - we set aside the order of the CIT(A) in this regard and direct the AO to restrict the disallowance to the extent of the exempt income. Appeal of the Assessee is partly allowed. Issues involved: Disallowance of interest under Rule 8D(2)(ii) concerning AY 2008-09.Detailed Analysis:1. Delay in filing appeal: The appeal was filed against the order of the CIT(A) concerning AY 2008-09. The assessee highlighted a delay of 1191 days due to pending rectification application before the CIT(A). The AR sought condonation of the delay, emphasizing the issue was legal and endorsed by the Supreme Court. The Tribunal, considering the bonafides and lack of prejudice to the Revenue, condoned the delay.2. Merits of the case: The main issue was the disallowance of interest amounting to Rs. 11,47,958 under Rule 8D(2)(ii) concerning Section 14A of the Income Tax Act. The AR argued that disallowance exceeding exempt income was impermissible, citing the decision of the Punjab & Haryana High Court. The AR referred to the dismissal of the Revenue's special leave petition by the Supreme Court, supporting the contention that disallowance exceeding exempt income was not legally justified. The AR proposed restricting the disallowance to the exempt income of Rs. 17,819.3. Adjudication by the Tribunal: The Tribunal acknowledged the legal position that disallowance under Section 14A cannot exceed the exempt income, citing various judicial precedents, including the decision in the State Bank of Patiala case. The Tribunal noted the dismissal of the Revenue's special leave petition by the Supreme Court, reinforcing the legal restriction on disallowance. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to limit the disallowance to the extent of the exempt income.4. Conclusion: The Tribunal partly allowed the appeal of the Assessee, emphasizing the legal principle that disallowance under Section 14A cannot surpass the quantum of exempt income. The judgment was pronounced on 29/01/2019.