Relief to Amazon Textiles: ITAT allows Suo motto Disallowance as Disallowance should not Exceed Exempt Income [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to Amazon Textiles allowing suo motto disallowance as disallowance should not exceed the exempt income.

The assessee, Amazon Textiles Pvt. Ltd, in the present case was a private limited company and had filed its return of income declaring income from capital gain and business/profession. The assessee in the year under consideration had made the disallowance under Section 14A of the Income Tax Act for an amount only.

However, as per the AO, the disallowance under Section 14A of the Income Tax Act, read with Rule 8D comes out at an amount only. Thus, the AO was of the view that the disallowance made by the assessee suo-moto was not correct. As such, the assessee had made less disallowance under the provision of Section 14A read with Rule 8D of Income-Tax Rules by an amount only. Thus, the AO made the disallowance and added to the total income of the assessee.

The Revenue and Assessee were in appeal and cross objection.

Ashok Kumar Suthar, on behalf of the revenue submitted that the assessee was to make the disallowance as per the provision of Rule 8D which had not been done by the assessee in its case. He also contended that the assessee should not be given benefit of the disallowance made by it suo-moto in the income tax return by disallowing the expense of an amount only.

Biren Shah, on behalf of the assessee submitted that the disallowance in any case should not exceed the exempted income as held by Gujarat High Court in the case of CIT vs. Corrtech Energy Private Limited.

The two-member Bench of Waseem Ahmed, (Accountant Member) And Siddhartha Nautiyal, (Judicial Member) observed that Itispertinent to note that the amount of disallowance under section 14A read with Rule 8D of Income Tax Rules could not exceed the amount of exempted income as held by the Delhi High Court in case of PCIT v. Caraf Builders & Constructions (P.) Ltd. Further, the SLP filed by the revenue against such order was dismissed by the Supreme Court in PCIT v. Caraf Builders & Constructions (P.) Ltd that disallowance under the provision of Section 14Ar.w.r. 8D of Income Tax Rules could not exceed the exempted income in the given facts and circumstances.

The Bench dismissed the appeal filed by the revenue and allowed the cross objection filed by the assessee.

To Read the full text of the Order CLICK HERE

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