DCIT Vs PTC India Financial Services Ltd. (ITAT Delhi)
ITAT Delhi held that disallowance under section 14A of the Income Tax Act cannot exceed the exempt income.
Facts- The assessee is a Non-Banking Financial Company. AO made disallowances under section 14A of the Income Tax Act. CIT(A) deleted the partly addition made on account of disallowance u/s. 14A of the Income Tax Act. Being aggrieved, both revenue and assessee has preferred the present appeal.
Conclusion- Held that AO has mechanically applied the formula given in Rule 8D, hence he found that AO has computed the disallowance which is far in excess of the exempt income disclosed by the assessee. In this regard, he referred to Hon’ble Delhi High Court decision in the case of Joint Investment (P) Ltd. vs. CIT and held that disallowance u/s 14A cannot exceed the exempt income. Hence, he directed that assessee has dividend income of RS.57,66,026/- whereas AO disallowed an amount of Rs.17,35,02,922/- which is not logically or prudently possible.
Therefore, following the aforesaid decision of Hon’ble Delhi High Court, ld. CIT (A) directed the AO to limit the disallowance to RS.57.66 lakhs.
FULL TEXT OF THE ORDER OF ITAT DELHI
These are cross appeals by the Revenue and assessee arising out of the order of ld. CIT (Appeals)-36, New Delhi dated 18.05.2017 pertaining to AY 2012-13.
2. The grounds of appeal taken by the Revenue read as under :-
“(i) In the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition made of disallowance of depreciation of Rs.2,85,28,829/- ignoring the fact that the assessee company has made investment in windmill.
(ii) In the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition made on account of short deduction of TDS of Rs.53,99,200/-.
(iii) In the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition made on account of disallowance u/s 14A of Rs. 16,77,36,896/-.”
3. The grounds of appeal taken by the assessee read as under :-
“1. That the order passed by the CIT(A) upholding the additions made by the AO is illegal and bad in law and the additions sustained should be deleted.
2. That the AO and CIT(A) have erred in law and on facts in not providing a reasonable and adequate opportunity to the appellant to be heard. The orders are passed in gross violations of principles of natural justice.
3. That the CIT(A) has grossly erred on facts and in law in upholding addition of Rs.9,81,86,182/- made by the AO on account of foreign exchange. loss. The addition is illegal and bad in law and should be deleted.
4. That the CIT(A) has grossly erred in ignoring the important aspects of the case while upholding the addition of Rs.9,81,86,182/- on account of foreign exchange loss.
5. That the CIT(A) has grossly erred on facts and in law in sustaining the addition of Rs.57,66,026/- under See 14A. The addition of Rs.57,66,026/- sustained by the CIT(A) is illegal and bad in law and should be deleted.
6. That the AO and CIT(A) have grossly erred on facts and in law in invoking Sec 14A and Rule 8D against the appellant and have erred in ignoring the important aspects of the case.
7. That without prejudice the calculations done under Rule 8D are highly excessive and should be reduced substantially in view of various judicial pronouncements.
8. That without prejudice the voluntary disallowance of 23.06 lakhs made by the assessee itself should be included in the final amount of disallowance computed.
9. That the documents, explanations filed by the Assessee and the material available on record has not been properly considered and judicially interpreted and have been wrongly ”
4. Brief facts of the case are that the assessee is a Non-Banking Financial Company (NBFC). It is promoted by PTC India Ltd. It is engaged in the business of making principal investment in, and providing financial solutions for companies with projects across the energy value chain, generation and distribution of electricity. For AY 2011-12, it filed its return on 30.09.2011 declaring income of Rs. 39,86,60,290/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’). Thereafter, the case was selected for scrutiny under CASS. During the assessment proceedings, assessee filed details which the Assessing Officer considered and examined. He completed the assessment at a total income of Rs.2,09,87,25,890/- The disallowances made by the AO are as under
