2020 (12) TMI 613 - HC - Income Tax

Tax appeals dismissed as Rule 8D disallowance can't exceed exempted income. Assessing Authority satisfaction crucial.

The Court dismissed the tax case appeals by the Revenue, affirming that the disallowance under Rule 8D cannot exceed the exempted income earned by the ... Disallowance u/s 14A read with Rule 8D - Tribunal directing the Assessing Officer to delete the disallowance as to exempted income was earned by the assessee - HELD THAT:- Substantial question of law raised for consideration was answered against the Revenue by the Hon'ble Division Bench of this Court in the case of Marg Ltd. [2020 (10) TMI 102 - MADRAS HIGH COURT] wherein it was held that the disallowance under Rule 8D of the Income Tax Rules, 1962 read with Section 14A of the Act could never exceed exempted income earned by the assessee during the particular assessment year and that the same could be computed as per Rule 8D of the said Rules only after recording satisfaction by the Assessing Authority. - Decided against revenue. Issues:- Appeal by Revenue challenging order of Income Tax Appellate Tribunal regarding disallowance of exempt income under Section 14A read with Rule 8D of Income Tax Act, 1961 for assessment years 2013-14 and 2012-13.Analysis:1. Substantial Question of Law: The Revenue appealed challenging the Tribunal's direction to delete the disallowance of exempt income earned by the assessee. The question raised was whether the Tribunal was correct in directing the Assessing Officer to delete the disallowance despite the CBDT circular No.5/2014 mandating disallowance under Section 14A read with Rule 8D even if the taxpayer did not earn any exempt income in a particular year.2. Judicial Precedents: The Hon'ble Division Bench and an earlier decision of the Court in the case of Marg Ltd. Vs. CIT clarified that the disallowance under Rule 8D could not exceed the exempted income earned by the assessee in the particular assessment year. It was emphasized that the computation under Rule 8D required satisfaction by the Assessing Authority. Additionally, the Court referred to decisions from the Delhi High Court and the Bombay High Court to support this interpretation.3. Decision: Based on the precedents and interpretations provided, the Court dismissed the tax case appeals by the Revenue. The substantial question of law was answered against the Revenue, affirming that the disallowance under Rule 8D cannot exceed the exempted income earned by the assessee during the relevant assessment year. Consequently, the connected CMP was also dismissed, upholding the Tribunal's decision.This detailed analysis of the judgment highlights the key legal issues, the arguments presented, relevant judicial precedents, and the final decision rendered by the High Court.