Relief to Cricket Club of India: ITAT upholds Restriction of 2% Disallowance by AO on Exempt Income u/s 14A of Income Tax Act [Read Order]

While entertaining the appeal filed by the Cricket Club of India (CCI), the Mumbai Bench of Income Tax of Appellate Tribunal (ITAT) upheld the view of the Assessing Officer (AO) which restricted the 2% disallowance of exempt income under Section 14A of the Income Tax Act, 1961 for the Assessment Year 2013-14 with due application of mind.

The two benches of B.R. Baskaran (Accountant member) and Rahul Chaudhary (Judicial member) held that the Principal Commissioner of Income Tax (PCIT) was not justified in exercising the powers of revision under Section 263 of the Income Tax Act.

The Appellant genuinely submitted a return of income for the Assessment Year 2011–12 on September 30, 2011, reporting "Nil" income, which was subsequently modified on March 30, 2013. The appellant disclosed the earnings of 3,30,35,884 and offered to pay taxes on interest income and capital gains income in accordance with the Supreme Court's ruling in Bangalore Club v. CIT & Anr.

Further scrutiny was completed by the AO under Section 143(3) of the Income Tax Act at a total income of ₹4,54,38,616. The AO concluded that the catering income of  ₹11,94,877  was not covered under the principle of mutuality and was liable to tax under the heading ‘Income from Other Sources’.

The AO made an addition of ₹4,59,381 under the head ‘Income from House Property’ and disallowance of INR 1,07,48,473 under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962.

The appellant had placed the original as well as the revised return of income along with the reason for filing a revised return, audited financial, note on the nature of activities, details relating to Income from House Property, Capital Gains Income and Income from Other Sources offered to tax, submissions relating to disallowance of deduction under Section 14A of the Income Tax Act before the AO which details of receipts offered to tax and details of receipts claimed as exempt in terms of a principle of mutuality as well as the assessment orders of the last three assessment years.

The appellant filed a note on the disallowance of expenditure under Section 14A of the Income Tax Act wherein it was contended that the Appellant had only claimed a deduction for expenditure incurred wholly and exclusively for earning income offered to tax under the head Income from House Property, Capital Gains and Income from Other Sources.

It was added that the expenses relating to income not offered to tax by claiming the benefit of the principle of mutuality were not claimed as a deduction. After taking into consideration the reply furnished by the Appellant the AO had restricted the disallowance at 2% of exempt income after due application of mind.

The bench held that “the view taken by the Assessing Officer to restrict the disallowance under Section 14A of the Act to 2% of the exempt income for the Assessment Year 2012-13 was a plausible view taken by the Assessing Officer after due application of mind which cannot be interfered with by the PCIT in the exercise of powers under Section 263.”

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