Expenditure disallowable by invoking section 14A read with rule 8D of the IT Act

The Income Tax Appellate Tribunal (ITAT) Delhi has ruled on a case concerning the disallowance of expenditure under Section 14A of the Income Tax Act, read with Rule 8D. The assessee argued against a disallowance of Rs. 3,07,307/-. The Tribunal noted that the dividend income earned was only Rs. 49,489/- and referred to a Delhi High Court ruling stating that Section 14A and Rule 8D cannot be interpreted to disallow the entire tax-exempt income, but only expenditure incurred in relation to it.

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI “F” BENCH: NEW DELHI
(THROUGH VIDEO CONFERENCING)
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER &
DR.B.R.R.KUMAR, ACCOUNTANT MEMBER
ITA No.6712/Del/2017
Assessment Year : 2014-15

Paliwal GDR Homestyles (P.) Ltd.,
38, Functional Indl. Estate,
Paharganj, New Delhi-110092
PAN-AACCP3904F
vs

DCIT,

Circle-10(1),
New Delhi

APPELLANT RESPONDENT
Appellant by Ms. Monika Aggarwal, CA
Respondent by Ms. Mrinalini Sapra, Sr.DR
Date of Hearing 26.08.2021
Date of Pronouncement 03.09.2021
ORDER

The only effective ground raised by the assessee is against the disallowance made u/s 14A of the Income Tax Act, 1961 (“the Act”) r.w.Rule 8D of the Income Tax Rules, 1962 (“the Rules”) amounting to Rs.3,07,307/-.

2. Facts in brief of the present case are that the assessee filed its return of income at Rs.1,40,18,020/-. The case was selected for scrutiny assessment and the assessment u/s 143(3) of the Act was framed vide order dated 24.11.2016. By framing the assessment, the Assessing Officer made addition u/s 14A of the Act in terms of the provision of Rule 8D of the Rules amounting to Rs.3,07,307/-. Apart from it, the Assessing Officer also made certain adhoc disallowance of Rs.1,37,303/- in respect of telephone expenses and vehicle running expenses.

3. We have heard the rival contentions and perused the material available on record. The Revenue has not controverted the fact that during the year under appeal, the assessee had earned a dividend income of Rs.49,489/- only. The Hon’ble Delhi High Court in the case of Joint Investment P.Ltd. vs CIT (supra) held that “by no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure; incurred by the assessee in relation to the tax exempt income.

4. In the result, the appeal of the assessee is partly allowed. Above decision was pronounced on conclusion of Virtual Hearing in the
presence of both the parties on 03.09.2021.

Please find attached the enclosed file for the full judgement