Appellant succeeds in challenging disallowance under Income Tax Act, Section 14A. Tribunal directs deletion after considering exempt income.

The appellant challenged additional disallowance under section 14A of the Income Tax Act with Rule 8D of the Income-tax Rules. Despite the appellant's explanations and workings, the Ld. AO made disallowances without adequate consideration. The Ld. CIT(A) upheld the disallowance but directed consideration only for investments yielding exempt income. The tribunal, citing Supreme Court precedent, directed the Ld. AO to delete the disallowance. Consequently, the appeal was allowed, and the disallowance under section 14A of the Act was directed to be deleted.

---

---

Issues involved:
The judgment involves the challenge of disallowance made under section 14A of the Income Tax Act read with Rule 8D of the Income-tax Rules.

Disallowance under section 14A of the Act read with Rule 8D of Income-tax Rules, 1962:
The appellant contested the additional disallowance of Rs 36,07,446 under section 14A of the Act read with Rule 8D of the Income-tax Rules, over and above the suo moto disallowance of Rs 9,00,000. The appellant argued that the basis adopted for computing the disallowance was not considered by the Hon'ble CIT(A). Furthermore, the disallowance of interest expenditure of Rs 48,186 under Rule 8D(2)(ii) and the disallowance of Rs 44,59,260 under Rule 8D(2)(iii) were also challenged. The appellant contended that the investments were made from its own funds and not borrowed funds. Each ground of appeal was submitted independently without prejudice to the others.

The delay in filing the appeal was addressed by the appellant, explaining that it was due to inadvertence by the Chartered Accountant. The delay of 23 days was condoned, and the appeal was admitted for adjudication.

The main issue in this appeal was the challenge against the disallowance made under section 14A of the Act read with Rule-8D of the IT Rules.

After considering the submissions and the material on record, it was noted that the appellant was involved in digital cinema distribution and other related businesses. The appellant had declared its total income for the relevant assessment year and had earned exempt dividend income from a subsidiary company. The appellant had suo moto disallowed an amount under section 14A of the Act for the purpose of earning exempt income and had provided detailed explanations and workings to support its position. Despite this, the Ld. AO proceeded to make disallowances under Rule 8D(2) of the Rules without adequately considering the appellant's contentions. The Ld. CIT(A) upheld the disallowance but directed the Ld. AO to consider only investments that had yielded exempt income. The tribunal found that the Ld. AO did not provide objective reasons for rejecting the appellant's claim, as required by the law. Citing the decision of the Hon'ble Supreme Court, the tribunal directed the Ld. AO to delete the disallowance made under section 14A of the Act.

Therefore, the appeal filed by the appellant was allowed, and the disallowance under section 14A of the Act was directed to be deleted.

---