TaxTMI 
TaxTMI 
2022 (8) TMI 1503
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....- made by the AO disallowance U/s 14A for expenditure related to exempt income. 4. The brief facts of the case are that the assessee is proprietor of M/s. Agarwal Iron & Steel Industries engaged in the business of steel blades and has declared total income of Rs. 41,87,940/- on 10.09.2013. Later assessment order u/s. 143(3) of the Income Tax Act [(hereinafter referred to as 'Act')] was passed on 01.02.2016 at an assessed income of Rs. 41,87,940/-. A show cause noticed u/s. 148 was issued on 27.02.2019 and served on the assessee. The assessee filed return of income in response to this notice on 27.02.2019 at total income of Rs. 41,87,940/-. The reasons recorded for re-opening were supplied to the assessee on 05.03.2019. The assessee filed objections to reasons recorded for reopening of assessment on 11.03.2019 which were disposed of by a speaking order on 07.06.2019. Notice u/s. 143(2) was issued on 07.06.2018. Notice u/s. 142(1) along with the questionnaire was also issued on 07.06.2019 to which the assessee furnished the reply. 5. In the aforesaid order, the AO issued notice to the assessee u/s. 143(3) of the I.T. Act, 1961 on 01.02.2016. The relevant part of the assessm....
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....mstances of the case, a disallowance of Rs. 9,53,227/- is made as per the provisions of Rule 8D and Section 14A the Act. [Rs. 9,53,227/-] Moreover, penalty proceedings u/s. 271(1)(c) are initiated separately for furnishing inaccurate particulars of income. 5. Subject to the above, the total income of the assessee is computed as under:- Total income declared by the assessee in the ROI 41,87,940/- Add:- 1. Disallowance u/s 14A for expenditure related to exempt income 9,53,227/- 9,53,227/- Total 51,41,157/- 6. Assessed at Rs. 51,41,157/- u/s. 143(3)/147 of the Income-tax Act, 1961 as above. Give credit For prepaid taxes. Charge interest as may be applicable. Issue demand notice and challan. Issue penalty notice u/s. 274 r.w.s. 271(1)(c) of the Act. 6. Being aggrieved by the AO the assessee preferred an appeal before the ld. CIT(A) and the findings are reproduced as under:- "5.1. Ground No. 3 of the revised grounds filed by the appellant is on the merits of the case. The appellant has contended that the AO has erred on facts and in law in making disallowance of Rs. 9,53,227/u/s. 14A of the Act, as against exempt income of Rs. 4278/- only, ignoring the settle....
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....4.06.2020] had held disallowance u/s. 14A of the I.T. Act cannot exceed the exempt income. The Bangalore Benches of the Tribunal had relied on the judgment of the Hon'ble Delhi High Court in the case of PCIT v. Caraf Builders & Constructions (P) Ltd. [(2019) 101 Taxmann.com 167 (Delhi)] and the order of the Mumbai Benches of the Tribunal in the case of Future Corporate Resources Limited v. DCIT [ITA No. 4658/Mum/2015 - order dated 26.07.2017]. The relevant finding of the Bangalore Benches of the Tribunal in the case of M/s. Century Real Estate Holdings Pvt. Ltd. v. ACIT (supra), reads as follow:- "10. In ground no. 7, the assessee is contending that the disallowance made by the tax authorities u/s. 14A of the Act is much more than exempt income. Before us, the Ld. A.R. submitted that the quantum of disallowance u/s. 14A of the Act should not exceed the amount of exempt income. In support of this proposition, the Ld. A.R. placed reliance on the decision rendered by Hon'ble High Court of Delhi in the case of Joint Investment Private Limited Vs. CIT 372 ITR 694 and also the decision rendered by Mumbai bench of Tribunal in the case of Future Corporate Resources Limited Vs. DC....
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....8.03.2015 HT Media Ltd. vs. ACIT 4. 148 ITD 336 (Del) Sahara India Financial Corpn. Ltd. vs. DCIT 5. ITA No. 548/Chd/2011 dated 30.09.2011 ACIT vs. Punjab State Coop & Marketing Fed. Ltd. 6. ITA No. 4320/Del/2014 dated 21.10.2015 Asst. IT vs. M/s. Kajaria Ceramics Limited 7. ITA No. 1027/Del/2013 dated 23.10.2015 Hema Engineering Industries Ltd. vs. ACIT 8. ITA No. 3763/Del/2013 dated 29.04.2015 Indus Valley Investment & Finance Pvt. Ltd. vs. DCIT 9. 18 SOT 390 (MUM) ACIT vs. Claridge Investments & Finance (P) LTD 5.6 In the case of Appellant, it is seen that provisions of Section 14A of the Act have been rightly invoked to disallow expenditure attributable to exempt income earned. However, it is seen that the quantum of disallowance exceeds the exempt income during the year, a proposition against the ratio of the decisions referred in para 5.3 to 5.5 above. Respectfully following the ratio of the decisions discussed in paras 5.3 to 5.5 above; the Assessing Officer is directed to restrict the disallowance u/s. 14A read with rule 8D to Rs. 4,278/- (quantum of exempt income earned) and delete the balance amount of Rs. 9,48,949/-. This ground of appeal is partly allowed.....
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.... as direct and indirect actual during the year dividend income earned. The disallowance u/s. 14A cannot be exceeding the amount of dividend income. The ld. CIT(A) has rightly allowed the provisions of section 14A of the Act to disallow expenditure attributable to the exempt income earned. The Ld. AR for the assessee has reiterated its arguments in submission for case laws submitted by department, which are distinguishable on the facts of the present case which are as under:- Sr. Name of decision Deptt. paper book page Our submission 1. Nahar Spinning Mills Ltd. vs. CIT, Ludhiana 1-7 The facts of the case are narrated at para 2 of the order * The facts are completely contrast and clearly distinguishable: It is to be noted that in that case the assessee has erred dividend income of Rs. 28544745/- (para2) and the disallowance stood at only Rs. 135270/- (para 2) thus exempt income is for higher than the expenses disallowed. The ground of challenge in that matter was that no expenses were incurred in relation to earning of dividend income but assessing authority disallowed administrative expenses. However in the present case expenditure are higher than the exempt income and t....
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....t. "1.1 Case laws submitted by the department are distinguishable: We are submitting herewith the table highlighting that the case laws as has been submitted by the department are distinguishable on the facts of the present case Thus all the decisions cited by the ld. DR are clearly distinguishable and not applicable on the facts of the present case. Without prejudice to above 1.2 Decision of hon'ble jurisdictional bench: It is submitted that the facts of the present case are identical to the case of Mount Malt Bru Limited vs. ITO in ITA no. 69/JP/2019 dt. 27-10-2020 (Jp)(ITAT) (PB 1-7) (see page 5 para 7) wherein it has been held that disallowance of expenditure cannot exceed the amount of exempt income. Thus the matter being covered by the decision of Hon'ble bench, the order of ld. CIT(A) is prayed to be sustained. 1.3 Other case laws: 1.3.1 Pr. Comm. of In-come Tax vs. Envestor Ventures Ltd. in tax appeal no. 16 of 2021 dt. 18-1-2021 (Mad)(HC) (PB 8-35) (see page 34 para 22) 1.3.2 GMR Enterprises Private Limited vs. DCIT in ITA no. 2310/Bang/2019 dt. 28-10-2021 (Bang)(ITAT) (PB 36-56) (see page 42 para 3.6) In above facts and circumstances of the c....