Section 14A Disallowance: ITAT Directs Restricting Disallowance to Rs. 12 Lakh, Following Previous Year's Ruling [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) set aside the matter for the Assessment Year (AY) 2016-17, directing the disallowance under section 14A of the Income Tax Act, 1961 to be restricted to Rs. 12 lakhs, based on errors in the CIT(A)'s order.

Rasna Private Limited, the appellant-assessee, an instant drink manufacturing company,had filed its Return of Income (ROI) for the AY 2016-17, which was subsequently subject to disallowance under section 14A.

Law and Procedure for Filing of Appeals

The Assessing Officer (AO), during scrutiny, made various disallowances, including a disallowance under section 14A of Rs.63,39,616, which comprised of Rs.9,22,642 directly related to exempt income, Rs.17,50,831 being disallowance of interest, and Rs.36,66,143 being 0.5% of the average value of investments.

The assessee, being dissatisfied with the AO’s order, filed an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) reviewed past appellate orders and observed that, for the current assessment year 2016-17, the appellant had earned exempt income amounting to Rs.4,72,69,055/- and had on its own disallowed expenses of Rs.9,22,642 under section 14A of the Act.

Law and Procedure for Filing of Appeals

The CIT(A) confirmed the disallowance of Rs.54,16,974 under section 14A of the Act, as computed by the AO invoking Rule 8D of the act, despite the assessee's contention that the interest-free funds available were more than the total investments in shares/debentures/bonds.

The assessee appealed to the tribunal, challenging the CIT(A)'s decision to uphold the disallowance of Rs.54,16,974 under section 14A of the Act, arguing that the CIT(A) failed to consider the ITAT's prior order in the assessee's own case for Assessment Year 2010-11, which had restricted the disallowance to Rs.7 lakhs.

Additionally, the assessee contested the confirmation of disallowance of expenses under Section 14A of the Act, amounting to Rs.54,16,974, by the CIT(A).

The tribunal noted that the assessee counsel argued that the disallowance under section 14A was previously addressed in the assessee’s own case for AY 2010-11, and that the ITAT had restricted the disallowance to Rs.7 lakhs, which was followed in subsequent years.

Law and Procedure for Filing of Appeals

The two-member bench comprising Smt. Annapurna Gupta (Accountant Member) and Shri Siddhartha Nautiyal (Judicial Member) set aside the matter for AY 2016-17, partly allowing the appeal of the assessee and restricting the disallowance under section 14A of the Act to Rs. 12 lakhs.

In Conclusion, the appeal was partly allowed, with the disallowance under section 14A of the Act restricted to Rs. 12 lakhs.

To Read the full text of the Order CLICK HERE

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