Pragati Automotive Engineers Private Limited Vs ITO (ITAT Delhi)
The appeal before the Income Tax Appellate Tribunal (ITAT) related to Assessment Year 2017-18 and challenged the confirmation of a disallowance of ₹7,54,396 under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.
The assessee had filed its return declaring a total income of ₹200. The case was selected for limited scrutiny under CASS on the issue of expenses incurred for earning exempt income. During the relevant year, the assessee earned exempt income comprising dividend income of ₹2,07,642 and long-term capital gains of ₹55,473 exempt under Section 10(38), aggregating to ₹2,63,115. The assessee did not make any disallowance under Section 14A and contended that all expenses incurred were routine business and operational expenses such as audit fees, ROC expenses, bank charges, salaries, and employee benefit expenses related to taxable business operations. According to the assessee, no expenditure had been incurred for earning exempt income.
The Assessing Officer observed that exempt income had been earned without any corresponding disallowance. Applying Section 14A read with Rule 8D, the Assessing Officer computed a disallowance of ₹22,95,054.72, being 1% of the average value of investments of ₹22.95 crore. However, since the total expenditure claimed by the assessee was ₹7,54,396, the disallowance was restricted to that amount and added to the assessee’s income.
