The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, held that disallowance under section 14 A of the Income Tax Act, 1961, cannot be more than the exempt income.
The aforesaid observation was made by the Mumbai lTAT when an appeal was preferred before it by an appellant, as against the order dated 16/10/2019, passed under section 250 of the Income Tax Act, 1961, by the Commissioner of Income Tax (Appeals) Mumbai, for the assessment year 2010–11.
The facts of the case were that the assessee was an individual who was engaged in the business of trading in shares. The assessee was also the director of M/s Sanghi Corporate Service Ltd, and for the year under consideration, he did not file his return of income.
Subsequently, on the basis of information received from ITD systems, reassessment proceedings were initiated against the assessee and notice under section 148 of the Income Tax Act was issued on 17/03/2015 after recording reasons. And in response to the same, the assesse had electronically filed the return of income on 02/04/2015, declaring his total income as NIL.
Pursuant thereto, statutory notices under section 143(2) and 142(1) of the Income Tax Act were issued and the assessee filed its reply to the information/details sought. And after considering the submissions of the assessee, the Assessing Officer (AO) vide his order dated 10/02/2016, passed under section 143(3) r/w section 147 of the Income Tax Act, assessed the total income at Rs. 44,50,240, after making certain additions to the income returned by the assessee.
And against the same, the assessee had preferred an appeal before the CIT(A), but the addition made by the AO being confirmed by the CIT(A), the assessee was left with no other option but to prefer the instant appeal before the ITAT Bench.
The issue involved in the assessee’s appeal being the question as to whether on the facts and circumstances of the case, the Commissioner of Income Tax (Appeals), has erred in confirming the addition of Rs.1,68,764/-under Rule 8D sub-section Z , without appreciating the fact that the Investment made in Mutual funds and shares were old Investment and out of saving fund, the ITAT Bench consisting of Om Prakash Kant, the Accountant Member, along with Sandeep Singh Karhail, the Judicial Member, observed:
“We find that during the course of appellate proceedings before the learned CIT(A), the assessee has submitted that total disallowance made under section 14A read with rule 8D(2) cannot exceed the amount of exempt income. Accordingly, accepting the aforesaid contention of the assessee, which was in lines with the prevailing jurisprudence, the learned CIT(A) directed the AO to restrict the disallowance under section 14A to the quantum of exempt income earned by the assessee i.e. Rs. 1,68,764.”
“We find that Hon’ble jurisdictional High Court in Nirved Traders (P.) Ltd. v/s Dy. CIT, vide its judgement dated 23.04.2019, has held that disallowance under section 14A of the Act cannot be more than exempt income”, they added.
Thus dismissing the assessee’s claim the ITAT Bench held:
“Therefore, we find no infirmity in the impugned order passed by the learned CIT(A). And as a result, this ground raised in assessee’s appeal is dismissed”.
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