Tribunal allows appeal, directs deletion of additional disallowance under section 14A

The Tribunal allowed the appeal, setting aside the order of the ld CIT(A) and directing the AO to delete the additional disallowance made under section 14A. The decision was based on the appellant's argument that the voluntary disallowance already exceeded the dividend income earned, supported by prior rulings where similar disallowances were not upheld. The Tribunal noted that no further disallowance was warranted as the voluntary disallowance surpassed the exempted income, leading to the appeal being allowed on 7th October 2020.

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Issues:
Challenge to order enhancing disallowance under section 14A of the Income Tax Act.

Analysis:
The appellant, engaged in managing hotels and resorts, challenged the decision of the ld CIT(A) confirming the enhancement of disallowance under section 14A made by the AO. The AO computed the disallowance under Rule 8D at Rs. 84.56 crores, resulting in an additional disallowance of Rs. 55.99 crores. The appellant contended that the disallowance voluntarily made exceeded the dividend income earned, citing precedents where similar disallowances were not upheld.

The appellant relied on prior decisions by the coordinate bench to support their argument that the disallowance under section 14A cannot surpass the dividend income received during the year. They emphasized that the voluntary disallowance already made by the appellant exceeded the dividend income, hence no further disallowance was warranted. The Tribunal had previously ruled in favor of the appellant in a similar case for AY 2013-14, where the enhancement of disallowance was deleted.

After hearing both parties, the Tribunal noted that in the current year, the appellant received dividend income of Rs. 8.47 crores and voluntarily disallowed Rs. 28.56 crores under section 14A. Additionally, the appellant earned long-term capital gains of Rs. 13 crores, claiming it as exempt income. Notably, both the dividend income and capital gains were from the same group company. Observing that the voluntary disallowance exceeded the exempted income, the Tribunal concluded that no further disallowance was necessary, following the decision made for AY 2013-14.

Ultimately, the Tribunal allowed the appeal, setting aside the order of the ld CIT(A) and directing the AO to delete the additional disallowance made under section 14A. The judgment was pronounced in the Open Court on 7th October 2020.

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