Is Share Income from Partnership Firm and Dividend from Mutual Funds exempt under the Income Tax Act?

This Income Tax Appellate Tribunal case concerns whether share income from a partnership firm and dividends from mutual funds are exempt from tax. The assessee claimed these incomes as exempt, arguing no expenditure was incurred to earn them. However, the Assessing Officer disallowed a significant portion under Section 14A. The CIT(A) agreed with the assessee, directing the deletion of the disallowance, leading to this appeal by the revenue.

IN THE INCOME TAX APPELLATE TRIBUNAL
“A’’BENCH: BANGALORE

BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND
SHRI B.R. BASKARAN, ACCOUNTANT MEMBER

ITA No.1583/Bang/2017
 AssessmentYear:2009-10

ACIT Central Circle-2(2)
Bangalore 
PAN NO : AADCC0651M
APPELLANT 

Vs.

M/s. Century Real Estate Holdings
Pvt. Ltd.
J.P. Technopark
4th Floor, No.3/1
Millers Road
Bengaluru 560 052.
RESPONDENT

C.O. No.32/Bang/2019
(Arising out of ITA No.1583/Bang/2017)
 Assessment Year:2009-10

M/s. Century Real Estate Holdings
Pvt. Ltd.
J.P. Technopark
4th Floor, No.3/1
Millers Road
Bengaluru 560 052.

Vs. 

ACIT Central Circle-2(2)
Bangalor3e
APPELLANT RESPONDENT

Appellant by : Ms. Neera Malhotra, D.R.
Respondent by : Shri Ramakrishnan, A.R.

Date of Hearing : 15.04.2021
Date of Pronouncement : 28.06.2021

O R D E R

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

This appeal filed by the revenue and the cross objection filed by the assessee are directed against the order dated 27.4.2017 passed by Ld. CIT(A)-11, Bengaluru and they relate to the assessment year 2009-10. The issues urged in these appeals relate to disallowance made u/s 14A of the Income-tax Act,1961 ['the Act' for short].

2. The facts relating to the issue are stated in brief. The assessee is engaged in the business of property development. During the year under consideration, the assessee received share income from partnership firm and dividend from mutual funds aggregating to Rs.2,64,40,765/-. The assessee claimed the above said amount as exempt. However, the assessee did not make any disallowance u/s 14A of the Act. It contended before the A.O. that it did not incur any expenditure to earn the exempt income. The A.O. rejected the said contention and computed the disallowance under Rule 8D consisting of interest disallowance of Rs.1,64,302/- under Rule 8D(2)(ii) of the Act and expenses disallowance of Rs.1,49,73,084/- under Rule 8D(2)(iii) of the Act, both aggregating to Rs.1,51,37,386/-.

3. Before Ld. CIT(A), the assessee contended that the interest expenditure was incurred in respect of term loan and bank overdraft. Further, it was contended that the own funds available with the assessee is in excess of the value of investment. Hence, interest disallowance under rule 8D(2)(ii) of the Act is not called for. With regard to the expenses disallowance, it was submitted that the assessee has cross charged an amount of Rs.1,19,59,384/- out of operating and other expenses to the partnership firms and only net  expenses has been claimed. Accordingly, it was submitted that no disallowance under rule 8D(2)(iii) of the Act is also called for. The Ld. CIT(A) was convinced with the contentions of the assessee and accordingly, directed the A.O. to delete the disallowance of Rs.1,51,37,386/-. Aggrieved, the revenue has filed this appeal. The assessee has also filed cross objection belatedly raising certain legal contentions. 

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