Disallowance under Section 14A restricted to actual exempt income earned, Section 40(a)(ia) TDS matter remanded for fresh consideration

The ITAT Delhi partially allowed the assessee's appeal. Regarding disallowance under section 14A read with Rule 8D, the tribunal restricted the disallowance to Rs. 930, being the actual exempt income earned, following Delhi HC precedent that disallowance cannot exceed exempt income. The tribunal rejected the department's argument about retrospective application of Finance Act 2022 amendments. For disallowance under section 40(a)(ia) concerning TDS on interest payments, the tribunal remanded the matter to the AO for fresh consideration, directing examination of whether payees filed returns and paid taxes on received amounts, following Delhi HC precedents.

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Issues involved:
The issues involved in this case are:
1. Disallowance of expenses u/s 14A read with Rule 8D of the Income Tax Rules, 1962.
2. Disallowance of interest paid by the assessee u/s 40(a)(ia) of the Act.
3. Levy of interest under section 234A, 234B, and 234C of the Act.

Issue 1: Disallowance of expenses u/s 14A read with Rule 8D of the Income Tax Rules, 1962:
The assessee challenged the disallowance of Rs. 11,12,486/- under Rule 8D(2)(iii) of the Income Tax Rules, contending that the disallowance cannot exceed exempt income. The Jurisdictional High Court held that the amendment to section 14A brought by the Finance Act, 2022, is not retrospective. Therefore, the disallowance was restricted to Rs. 930/-, which was the exempt income earned by the assessee during the relevant year. This ground was partly allowed.

Issue 2: Disallowance of interest paid by the assessee u/s 40(a)(ia) of the Act:
The assessee disputed the disallowance of Rs. 71,40,344/- for non-deduction of TDS on interest paid. The assessee argued that the interest paid was only Rs. 54,77,288/- and not the disallowed amount. The assessee also provided certificates from Bajaj Finance Ltd. certifying the interest paid. The Hon'ble Delhi High Court held that as long as the payee has filed its return of income and paid taxes on the income received, the assessee would not be treated as a defaulter. The case was remanded to the AO for fresh consideration in light of the court decisions. These grounds were allowed for statistical purposes.

Issue 3: Levy of interest under section 234A, 234B, and 234C of the Act:
The assessee contested the levy of interest under these sections, arguing that they were not applicable in the circumstances of the case. However, no specific details or arguments were provided in the judgment regarding this issue.

In conclusion, the appellate tribunal partially allowed the appeal of the assessee concerning the disallowance of expenses under section 14A and remanded the issue of disallowance of interest paid for fresh consideration by the Assessing Officer in line with the decisions of the Delhi High Court. The judgment did not provide detailed information on the challenge to the levy of interest under sections 234A, 234B, and 234C of the Act.

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