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TMI Blog2024 (5) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... eived by the assessee on 23.01.2024 from ITAT Bench in respect of schedule of hearing on 22.02.2024, the same was forwarded to the Tax Counsel. The tax counsel enquired for the status of Form 36 and Grounds of appeal filed by the revenue. Then the assessee cross checked from the office and office staff who had received the documents intimated that the documents were received by him but he forgot to hand over the same to the concerned person; then those documents were immediately handed over by him to the Accounts-cum-Tax Department of the assessee company and then the same were ultimately forwarded to the Tax Counsel for necessary action; thereafter, the Tax Counsel advised the assessee company to immediately file the Cross Objections in respect of the appeal filed by the Department along with the application for condonation of delay; the assessee company after consulting its legal counsel immediately took steps to file the cross objection against the appeal filed by the Revenue on 06.02.2024 and thus there is a delay in filing of cross objection by 113 days due to negligence on the part of the staff working in the office of the assessee company. 3. From the contents of the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ignoring the legislative intent expressed in CBDT's Circular no. 5/2014 dated 11.02.2014, which explicitly states that expenses relatable to earning of exempt income have to be considered for disallowance irrespective of the fact whether any such income has been earned during the financial year or not; as confirmed by Apex Court in Maxopp Investment Ltd. vs. CIT, 91 Taxman.com 154(SC). 5. The assessee in its Cross Objections, has taken the following grounds : (i) On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals), Income Tax Department {CIT(A), ITD)} [NFAC] has erred both on facts and in law in restricting the disallowance under Section 14A to Rs. 48,48,000/- despite the fact that assessee has earned the exempt income of Rs. 7,12,442/- during the year under consideration. (ii) On the facts and circumstances of the case, the above action of the Ld. CIT(A), ITD is contrary to the settled position of law that the disallowance under Section 14A cannot exceed the amount of exempt income earned by the assessee. (iii) On the facts and circumstances of the case, the above action of the CIT(A), ITD is contrary to the settled position o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, since the assessee had failed to meet the mandatory condition of submission of Form 26A before the Director General of Income Tax (Systems), through due procedure as prescribed in Section 201(1) of the Act read with Rule 36ACB of the IT Rules, 1962. It has been contended that the ld. CIT(A) erred in holding that mere non filing of Form 26A before Director General of Income Tax (Systems) could not lead to the assessee being held as an assessee in default, when furnishing of Form 26A by the assessee before the Director General of Income Tax (Systems) is entirely in accordance with the mandatory procedure prescribed in Rule 31ACB(2) of the Rules. It has been contended that as rightly held by the ld. CIT(A), the provisions of Section 40(a)(ia) read with those of Section 201(1) of the Act unambiguously lay down and if an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.4 Then, to support the unopposed proposition that the payee has filed its return of income disclosing the payment received by it and has also paid tax on such income, and so, the assessee cannot be treated as a person in default u/s 201(1) of the Act, reliance has been placed on "CIT -1 Vs Ansal Land Mark Township (P) Ltd.", 2015(9) TMI 79-Delhi High Court. 8.5 Reliance has also been placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of "Pr. CIT-2, Chandigarh Vs Shri Shivpal Singh Chaudhary", 2018(7) TMI 1850 (P&H). 8.6 It has been contended that in view of the facts as narrated and the law as cited, the order passed by the ld. CIT(A) on this issue be confirmed while rejecting ground Nos. 1 & 2. 9. The facts are not disputed. The issue is as to whether the Department is right in contending that as held by the AO, since the assessee had not furnished the Forms 26A with regard to the three parties before the Director General of Income Tax (Systems), the disallowance ought to have been sustained by the ld. CIT(A). 10. Apropos the question of non-furnishing of Form 26A before the Director General of Income Tax (Systems), we find that the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a the assessee. 13. For the above discussion, we hold that the assessee cannot be put to disallowance u/s 40(a)(ia) of the Act, holding it to be a person in default, particularly when the AO has not called into question the contents of the Forms 26A. For the mere reason of non-filing of Form 26A before the Director General of Income Tax (Systems) also, where the payee has filed its return of income disclosing the payment received by it and has also paid tax thereon. Accordingly, finding no merit therein, ground Nos. 1 & 2 are rejected, upholding the order passed by the ld. CIT(A) on this issue. 14. Coming to Ground Nos. 5 to 6, the assessee had earned dividend income of Rs. 7,12,442/-, as is available from APB- 50, i.e., Note No. 26 to the assessee's account, Non Operating Income. The same was exempt u/s 10(34) of the Act. As per APB-2, which is a copy of the computation of income at APB 87, i.e., the details of expenditure disallowed, the assessee had made a suo-moto disallowance of Rs. 48,48,048/- (98,64,65,171+95,27,54,300/-/2*0.5%). The AO made a further disallowance of Rs. 2,09,78,997/- u/s 14A of the Act over and above the said disallowance of Rs. 48,48,048/- made suo-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that CBDT Circular No. 5 of 2014 clearly states that expenses relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the Financial Year or not. It has further been submitted that the Explanation inserted in Section 14A by the Finance Act, 2022 is a clarificatory provision, which states that notwithstanding anything to the contrary contained in the Act, the provisions of Section 14A shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under the Act, has not accrued or arisen, or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income. It has been stated that so, the ld. CIT(A) has erred in not sustaining the entire disallowance correctly made by the AO u/s 14A of the Act read with Rule 8D of the Rules. 15. Laying stress on the proposition that disallowance u/s 14A of the Income Tax Act, 1961 cannot exceed the exempt income earned during the relevant assessment year, irres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er exceed the exempted income earned by the assessee during the particular assessment year and, further, without the recording of the satisfaction by the assessing authority that the apportionment of such disallowable expenditure made by the assessee with respect to the exempted income is not acceptable for reasons to be assigned by the assessing authority, he cannot resort to the computation method under Rule 8D of the Rules. 16.1 "M/s Marg Ltd." (supra) has been followed in "M/s GMR Enterprises Pvt. Ltd." (supra). 16.2 "M/s Marg Ltd." (supra) and 'M/s GMR Enterprises Pvt.Ltd." (supra) have been followed in "Ansal Buildwell Pvt. Ltd." (supra). 16.3 'M/s GMR Enterprises Pvt. Ltd." (supra) has been followed in "JITF Shipyard Ltd." (supra). 17. Then, in "M/s SEL Manufacturing Co. Ltd. Vs DCIT, Central Circle-III, Ludhiana" vide order dated 28.02.2019, passed in ITA 157/CHD/2018, a Co-ordinate Bench of the Tribunal, at Chandigarh, has held that disallowance u/s 14A cannot exceed the total exempt income earned by the assessee during the year. 17.1 No contrary decision has been brought to our notice. 18. In keeping with the above decisions, we direct that the disallowance u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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