2021 (6) TMI 668 - AT - Income Tax

Tribunal limits disallowance under Section 14A, dismisses Section 80IA claim, emphasizes strict interpretation

The Tribunal partly allowed the assessee's appeal by directing the Assessing Officer to restrict the disallowance under Section 14A to the exempt income ... Deduction u/s 80IA - Claim restricted to extent of income from business and profession - AO be directed to allow the claim of deduction under section 80IA of the Act against the gross total income - HELD THAT:- The assessee is not eligible to claim the deduction u/s 80IA of the Act. The legislature has clearly spelt out in the deduction provisions that which incomes are eligible to claim deduction u/s 80IA, and therefore, the assessee cannot go beyond the provisions and claim deduction u/s 80IA. The deduction provisions should be interpreted strictly and if there is any ambiguity, it goes to in favour of revenue - See RAMNATH & CO. VERSUS THE COMMISSIONER OF INCOME TAX [2020 (6) TMI 158 - SUPREME COURT] - Accordingly, the assessee is not eligible to claim deduction u/s 80IA from the income from house property as claimed. Thus, we dismiss the ground no. 1 raised by the assessee on this issue. Disallowance u/s 14A - HELD THAT:- It is a settled position that disallowance of expenditure u/s. 14A read with Rule 8D shall not exceed exempt income earned for the year as per case law Joint Investment Pvt. Ltd.[2015 (3) TMI 155 - DELHI HIGH COURT]. The assessee earned exempt income of ₹ 42,35,977/- as per computation of income. Therefore, we direct the AO to restrict the disallowance u/s 14A rwr 8D to ₹ 42,35,977/-. Disallowance u/s 14A rwr 8D(2)(ii) and (iii) - value of investments should be considered only on the investments from which the assessee has earned exempt income - HELD THAT:- As relying on TRANSPORT CORPORATION OF INDIA LTD. [2016 (11) TMI 245 - ITAT HYDERABAD] We direct the AO to recalculate the disallowance as per rule 8D as per the above guidance. We further direct the AO if the disallowance u/s 14A is higher in the recalculation made by the AO, the same shall be restricted to the extent of exempt income earned by the assessee as per the case law Joint Investment Pvt. Ltd[2015 (3) TMI 155 - DELHI HIGH COURT] Dividend income should be treated as income from other sources is also not correct - Assessing Officer himself has treated it as a dividend income which is exempt and on other hand, he has treated as daily dividend income and taxed under the income from other sources. While recalculating disallowance u/s 14A, we have restricted the disallowance to the extent of exempt earned by the assessee or less than the exempt income, whichever is lower and the same amount cannot be taxed as income from other source, which amounts double taxation in the hands of the assessee. The dividend amount received by the assessee is exempt as per section 10(35) of the IT Act. Issues Involved:1. Disallowance of the assessee’s claim under Section 80IA of the Income Tax Act.2. Disallowance of expenditure under Section 14A of the Income Tax Act.3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.4. Treatment of dividend income under the head 'Income from Other Sources.'Detailed Analysis:1. Disallowance of Claim under Section 80IA:The assessee contended that the deduction under Section 80IA should be allowed against the gross total income, including income from house property. However, the assessee’s authorized representative was unable to substantiate this claim during the hearing. Subsequently, the assessee filed a letter stating that it did not wish to press this ground due to the smallness of the amount involved. The Tribunal held that the assessee is not eligible to claim the deduction under Section 80IA from income from house property. The Tribunal relied on the Supreme Court’s judgment in the case of Ramnath & Co. Vs. CIT, emphasizing that exemption provisions should be interpreted strictly, and any ambiguity should favor the revenue. Consequently, this ground was dismissed.2. Disallowance of Expenditure under Section 14A:The Assessing Officer (AO) disallowed an amount of Rs. 3,02,91,857 under Section 14A, related to interest expenditure on investments generating exempt income. The CIT(A) reduced this disallowance to Rs. 2,26,66,650. The Tribunal noted that disallowance under Section 14A read with Rule 8D should not exceed the exempt income earned, citing the case law Joint Investment Pvt. Ltd. Vs. CIT. The assessee earned an exempt income of Rs. 42,35,977. Thus, the Tribunal directed the AO to restrict the disallowance to Rs. 42,35,977, partly allowing the assessee’s appeal on this issue.3. Initiation of Penalty Proceedings under Section 271(1)(c):The Tribunal noted that the ground regarding the initiation of penalty proceedings under Section 271(1)(c) is premature and the assessee did not wish to press this ground. Hence, no detailed deliberation was made on this issue.4. Treatment of Dividend Income:The revenue’s appeal concerned the CIT(A)’s decision to restrict the disallowance under Section 14A to the dividend income earned by the assessee, which was Rs. 57,60,120. The Tribunal upheld the CIT(A)’s decision, asserting that disallowance should be limited to the exempt income earned. The Tribunal also addressed the issue of the AO treating the dividend income as 'Income from Other Sources,' which was contradictory as the AO had also considered it exempt. The Tribunal held that such treatment would result in double taxation, which is not permissible. The Tribunal directed the AO to recalculate the disallowance under Rule 8D, considering only those investments that generated exempt income, and restrict the disallowance to the exempt income earned or less, whichever is lower. The Tribunal also dismissed the revenue’s ground regarding additional evidence, as the revenue failed to establish any violation of Rule 46A by the assessee.Conclusion:The Tribunal partly allowed the assessee’s appeal regarding the disallowance under Section 14A, directing the AO to restrict the disallowance to the exempt income earned. The assessee’s claim under Section 80IA was dismissed, and the ground on penalty proceedings was noted as premature. The revenue’s appeal was allowed for statistical purposes, and the Cross Objections filed by the assessee were also allowed for statistical purposes. The Tribunal emphasized strict interpretation of exemption provisions and prevented double taxation of the same income.