TMI Blog2021 (8) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... not exceed exempt income earned for the year under consideration. A similar view has been taken by the Hon ble High Court of Delhi in the case of Joint Investments Pvt .Ltd vs. CIT [ 2015 (3) TMI 155 - DELHI HIGH COURT] where it was held that disallowances contemplated u/s.14A cannot swallow entire exempt income for the year under consideration. In this case, the assessee has earned dividend income of ₹ 6,99,349/-, whereas the Assessing Officer has computed disallowance of ₹ 6,99,349/- . Therefore, we are of the considered view that disallowance computed by the Assessing Officer is disproportionate and contrary to the settled principle of law by various High Courts including the Hon ble Delhi High Court. Hence, we direct the Assessing Officer to restrict disallowances contemplated u/s.14A read with Rule 8D(2)(iii) of the Income Tax Rules, 1962, to the extent of exempt income earned for the year. Disallowance of commission paid to Managing Director u/s.36(1)(ii) - AO disallowed commission paid to Managing Director u/s.36(1)(ii) of the Act, on the ground that the assessee has paid commission to Managing Director in lieu of profits or dividend - HELD THAT:- As deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter dated 12.03.2014 filed during the course of assessment proceedings, worked out disallowance of ₹ 60,073/- u/s 14A of the IT Act and offered the same for taxation for A.Y 2011-12. 2.5 Having regard to the fact that the AO has rightly computed the disallowance u/s 14A of the IT Act as provided in Rule 8D of the IT Rule 1962, the Ld. CIT(A) ought to have confirmed the disallowance made by the AC in the assessment for 2011-12 in the case of the assessee. 3. The Id. CIT(A) erred in deleting the disallowance of ₹ 31,98,200/- made by the AO, by treating the claim of commission payment to Managing Director of the company, as dividend within the meaning assigned in section 36(1)(ii) of the Income Tax Act,1961, in the assessment order for AY 2011-12 passed u/s 143(3) of the IT Act,1961,in the assessee s case. 3.1 The Id.CIT(A) erred in not appreciating that though the assessee claimed the said payment of commission to be salary and paid as contractual obligation, the nature of services rendered by the Managing Director was not furnished even during the course of appeal proceedings before him. 3.2 The ld.CIT(A) ought to have appreciated that, in its submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined total income of ₹ 24,68,99,470/-, by inter-alia, making additions towards disallowance u/s.14A for ₹ 2,55,22,111/- and disallowance of commission paid to Managing Director u/s.36(1)(ii) of the Income Tax Act, 1961 for ₹ 31,98,200/-. 4. Being aggrieved by assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has challenged disallowances u/s.14A of the Act on the ground that the Assessing Officer has erred in disallowing of interest expenditure, even though the assessee has filed necessary evidence to prove that it has not used interest bearing funds for making investments in shares and securities which yield exempt income. The assessee has also challenged disallowances computed by the Assessing Officer on the ground that the Assessing Officer has not recorded satisfaction as required u/s.14A(2) of the Act, and hence, in absence of specific satisfaction having regard to books of account, he cannot invoke Rule 8D of Income Tax Rules, 1962 to compute disallowances. The assessee has also challenged disallowance of commission paid to Managing Director on the ground that commission has been pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed in accordance with prescribed method provided under Rule 8D and hence, there is no error in the computation of disallowances made by the Assessing Officer. However, the learned CIT(A), without assigning any reason has simply deleted additions made by the Assessing Officer by holding that there is no satisfaction recorded by the Assessing Officer as required under law. 8. The learned A.R for the assessee, on the other hand, submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT., Chennai in assessee s own case for assessment years 2012-13 2013-14 in ITA Nos.3124 to 3126/Chny/2017, where the Tribunal has directed the Assessing Officer to examine availability of sufficient own funds to cover up investments made in shares and securities which yield exempt income. The AR further submitted that as regards disallowance of other expenses as required under Rule 8D(2)(iii) of Income Tax Rules, 1962, it may be restricted to the extent of exempt income earned for the year. 9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that an identical issue has been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Rule 8D(2)(iii) of the Income Tax Rules, 1962, to the extent of exempt income earned for the year. 11. The next issue that came up for our consideration from ground no.3 of revenue appeal is disallowance of commission paid to Managing Director u/s.36(1)(ii) of the Act. The Assessing Officer has disallowed commission paid to Managing Director u/s.36(1)(ii) of the Act, on the ground that the assessee has paid commission to Managing Director in lieu of profits or dividend. It was the explanation of the assessee before the authorities that commission has been paid to Managing Director, as per terms of appointment, which is authorized by section 309 of the Companies Act, 1956. 12. Having heard both the sides and considered material available on record, we find that this issue is also covered in favour of the assessee by the decision of the Tribunal in assessee s own case for assessment year 2012-13 to 2014-15 in ITA Nos. 3124 to 3126/Chny/2017 dated 08.05.2019, where the Tribunal has considered an identical issue and by following decision of the Hon ble High Court of Delhi in the case of M/s. AMD Metaplast Pvt.Ltd.Vs. DCIT reported in 341 ITR 563 deleted additions made by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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