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M/s Empire Packages (P) Ltd. Versus. The ITO

2015 (6) TMI 994 - ITAT CHANDIGARH

Disallowance u.s 14A - permissible limit - Held that:- In the instant case, the income from dividend has been shown at ₹ 1,11,564, the disallowance under section 14 A read with Rule 8 D worked out by the Assessing officer comes to ₹ 4,09,675/-. Thus it is clear that the AO has disallowed the entire ‘tax exempt income’ which is not permissible in view of the judgment of Joint Investment Pvt Ltd. Vs. CIT [2015 (3) TMI 155 - DELHI HIGH COURT]. The Hon’ble Delhi High Court held that the .....

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to decide the issue a fresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. - Decided partly in favour of assessee for Statistical purposes. - ITA No. 978/Chd/2013 - Dated:- 18-6-2015 - SHRI H.L.KARWA, HON'BLE VICE PRESIDENT Appellant By : Shri Mohit Dhiman Respondent By : Shri R.K. Gupta ORDER PER H.L.KARWA, VP This appeal filed by the Assessee is directed against the order of CIT(A), Chandigarh dt. 18/07/2013 relating to Assessment Yea .....

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ons of Section 14 A of the Income Tax Act, 1961. b) Without prejudice to the Ground No. 2 (a), the disallowance sustained by the Hon ble Commissioner of Income Tax (Appeals), is highly excessive. 3. a) That in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) gravelly erred in sustaining the addition of ₹ 2,22,110/- made by the Ld. Assessing Officer by capitalizing the interest on fixed assets. b) Without prejudice to the Ground No. 3(a), the addition su .....

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,675/- made under section 14 A of the Income Tax Act (in short the Act ), read with Rule 8 D of Income Tax Rules 1962 (in short the Rule ). The assessee company is in the business of manufacturing and sale of corrugated boxes and sheets. During the year under consideration, the total turnover of the assessee was at ₹ 29,38,26,526/- as against turnover of ₹ 24,15,15,000/- in the immediately preceding year. The AO disallowed the sum of ₹ 4,09,675/- under section 14 A read with Ru .....

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ortionate cost of 12 acres of land which was not being used for business purposes comes to ₹ 33.75 lacs. The AO observed that the assessee company has invested ₹ 33.75 lacs in agricultural land and the income earned from this agricultural land is exempt u/s 10(1) of the I.T. Act. He further observed that assessee company has shown agricultural income of ₹ 32,000/- for the year under consideration, which has been claimed as exempt u/s 10(1) of the Act. Since, the agricultural in .....

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essee has shown miscellaneous income of ₹ 32,000, further narration of which has been given as agricultural income. As regards, dividend income from mutual funds, the assessee stated in the reply that no interest bearing loans have been transferred for investment in the mutual funds. The AO concluded that the contention of the assessee on both counts is not acceptable. After examining the various details on record the AO worked out the disallowance under section 14 A read with Rule 8 D and .....

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of the assessee was that he had not made any expenditure on earning such income. The case of the Revenue is that if the AO is not satisfied with the claim of the assessee that no expenditure had been incurred or about the correctness of the claim of the expenditure, it is mandatory for him to compute the expenditure relating to the exempt income as per Rule 8 D. In my considered opinion the stand of the Revenue is contrary to the decision rendered by the Hon ble Jurisdictional High Court on thi .....

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A is required to collect such material evidence to determine expenditure, if any, incurred by the assessee in relation to earning of exempt income. The findings of the lower Authorities are contrary to the above decision of the Hon ble Jurisdictional High Court. In terms of Sub-section 2 of Section 14 A, it was incumbent upon the AO to bring such material or evidence on record in order to determine expenditure, if any, incurred by the assessee. The AO has worked out the disallowance relying on .....

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e disallowance is to be made under section 14 A read with Rule 8 D of the Income Tax Rule and it is immaterial as to whether interest bearing loans had been utilized for the purpose of these investments (income from which is exempt). In my opinion the above contention of the assessee requires reconsideration at the level of the AO. On perusal of the orders of the Authorities below, I find that the authorities below have not given any findings regarding agricultural income, if any claimed by the .....

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ons: 7. During the course of hearing, counsel for the petitioner had relied upon a decision of this Court in Commissioner of Income Tax VI v. Taikisha Engineering India Ltd., (ITA 115/2014, decided on 25.11.2014). The court had, in that judgment, highlighted the necessity in view of the peculiar wording of Section 14 A (2) that computation or disallowance of the assessee, or claim that no expenditure was incurred for earning exempt income should be examined with reference to the accounts and onl .....

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sub Rule(2) to Rule 8 D of the Rules is to be made. 13. We need not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub Section(2) to Section 14 A of the Act and sub Rule (1) to Rule 8 D of the Rules. 9. In the present case, the AO has not firstly disclosed why the appellant / assessee s claim for attributing ₹ 2,97,440/- as a disallowance under Section 14 A had to be rejected. Taikis .....

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sallowance ultimately directed works out to nearly 110% of that sum,i.e., ₹ 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8 D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14 A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the tax exempt income surely cannot swallow the entire amou .....

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