Tribunal limits disallowance to dividend income in partial appeal victory

The Tribunal partially allowed the appeal, limiting the disallowance to the amount of dividend earned during the year. The decision was announced on 4th January, 2021, following a Virtual Hearing.

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Issues:
Challenge to disallowance under section 14A of the Income Tax Act, 1961.

Analysis:
The appellant, a subsidiary company, challenged the disallowance of Rs. 8,28,036 under section 14A of the Income Tax Act, 1961 for Assessment Year 2013-14. The appellant's return showed a loss of Rs. 11,20,235, and the assessment was completed at a loss of Rs. 2,92,199 after the disallowance. The appellant contended that the Assessing Officer incorrectly applied Rule 8D(2)(iii) as there were no opening and closing balances of investments, leading to a plea for a nil disallowance. Additionally, the appellant disputed the assertion of a suo motu disallowance of Rs. 67,853, suggesting a restriction of disallowance to the dividend earned during the year.

The Authorized Representative argued against the correctness of the disallowance calculation, while the Sr. Departmental Representative supported the Lower Authorities' orders. Upon review, it was noted that the Assessing Officer mentioned a suo motu disallowance of Rs. 67,853 in the assessment order, although the appellant disputed making such a disallowance. Due to lack of evidence, the Tribunal could not delve into this issue. Considering the small amount involved and the overall case facts, the Tribunal directed the disallowance to be restricted to Rs. 67,853, the dividend earned by the appellant during the relevant year.

The Tribunal partially allowed the appeal, limiting the disallowance to the amount of dividend earned during the year. The decision was announced on 4th January, 2021, following a Virtual Hearing.

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