Disallowance us 14A of the Act cannot exceed the exempt income
IN THE INCOME TAX APPELLATE TRIBUNAL
The Relevant Text of the Order as follow :
31. We have considered the rival submissions of both the parties and deliberated various case law relied upon by the assessee. We have noted that during the year under consideration the assessee has earned exempt income of Rs. 1.62 lakhs only. The AO disallowed interest expenses under Rule 8D(ii) of Rs. 30,13,853/-. We have perused the profit and loss account of the assessee copy of which is available in the paper book filed by the assessee. We have noted that the assessee’s reserves and surpluses as on 31.03.2007 is Rs. 93.24 Crore and share capital of Rs. 9.8 Crore.
The total investment as per schedule 6 of profit and loss account is only Rs. 4.98 Crore. Moreover, most of the investments were made in past. Considering the decision of Jurisdictional High Court in HDFC Bank (supra) and Reliance Utility (supra) no disallowance under Rule 8(D)(ji) is warranted in case the reserve and surplus of the assessee are in far excess to the investment made by the assessee.
Considering the decision of Jurisdictional High Court and the fact that the assessee has surplus reserve available with it at the end of financial year, when the investments were made foreign exempt income and therefore no disallowance under Rule 8(D)(ii) is warranted.
32. The Delhi High Court in the case of Joint Investments(P.) Ltd. v. CIT [2015] 372 ITR 694/233 Taxman 117/59 taxmann.com 295 held that the window for disallowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to tax exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.
33. Further, considering the fact that disallowance u/s 14A of the Act cannot exceed the exempt income in view of the decision of Bombay High Court in PCIT Vs. HSBC Invest Direct (India) Ltd (supra), we direct the AO to restrict the disallowance u/s 14A of the Act at Rs. 1.62 lakhs only. In the result this ground of appeal is also partly allowed.
Tags: Judgement, Appellant Tribunal, Income Tax
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