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That the disallowance u/s 14A read with Rule 8D cannot exceed the actual exempt income received by the assessee during the year. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer – ITAT Delhi

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Late Shri D.K. Jain vs ACIT
Where the assesse has made the FDR out of borrowed funds, the interest on such FDRs cannot be added back by invoking the provisions of section 57(iii) of the Income Tax Act, 1961
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Crux : That the disallowance u/s 14A read with Rule 8D cannot exceed the actual exempt income received by the assessee during the year. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer

 

Case Details : Mahagun India Pvt. Ltd Vs. DCIT ITA No.1976/Del/2015

 

In Favour of –ASSESSEE

 

Facts of the Case – AY 2011-12

 

  • Assessee is a private limited company engaged in real estate developing .

 

  • The assessee filed its return of income declaring the total income at Rs.13,41,32,900/-.

 

  • During the assessment proceedings, the Assessing Officer observed that the assessee has shown exempt income of Rs.16,83,923/- u/s 10(38) of the Act as per computation of income filed along with the income-tax return .

 

  • Rejecting the various explanations given by the assessee and invoking the provisions of section 14A read with Rule 8D, the Assessing Officer made disallowance of Rs.51,00,215/- and accordingly made addition of the same to the total income of the assessee.

 

  • In appeal, the ld.CIT(A) directed the Assessing Officer to reduce the investment in share application money to the extent of Rs.1 crore from the figure of investment yielding tax free income while computing the disallowance under Rule 8D(2). He, however, in principle upheld the action of the Assessing Officer.

​​ Findings &Discussions: ​​ 

 

  • The ld. counsel for the assessee, at the outset, referred to the computation of income and submitted that the assessee has received only Rs.2,19,536/- as dividend income which has been claimed as exempt.

 

  • Relying on various decisions, it was submitted that the disallowance u/s 14A could not exceed the actual dividend income received.

 

  • The coordinate Benches of the Tribunal, following the decisions of the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT reported in 372 ITR 694 (Del) and in the case of CIT vs. Holcim (India) Pvt. Ltd. reported in 272 CTR 282 (Del) are consistently taking the view that the disallowance u/s 14A read with Rule 8D cannot exceed the actual dividend income received by the assessee which is claimed as exempt.

Conclusion:

 

Hence, it can be said that the disallowance u/s 14A read with Rule 8D cannot exceed the actual exempt income received by the assessee during the year.

 

To Download, Mahagun India pvt. Ltd

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