Mundra International Container Terminal Pvt Ltd Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that disallowance under section 14A of the Income Tax Act cannot exceed exempt income. Thus, disallowance u/s. 14A restricted to the extent of exempt income.
Facts- The assessee has earned dividend income of Rs.25,32,679/- which is exempt from tax but the assessee has not allocated any expenditure to earn the exempt income. Therefore, AO invoking the provisions of section 14A of the Act made disallowance of Rs.35,00,000/- as per Rule 8D. Notably, assessee suo-moto made disallowance of Rs.35,00,000/- u/s.14A even though the exempt income is only Rs.25,32,679/-. However, AO confirmed the disallowance to Rs.35 lacs invoking Rule 8D. CIT(A) restricted the disallowance to the extent of dividend income earned by the assessee.
Conclusion- This issue is no more res-integra since this issue is settled by the Hon’ble Supreme Court in the case of Max Opp Investment Limited (2018) [402 ITR 640] has also upheld the decision of Punjab & Haryana High Court in the case of CIT Vs. Hero Cycles where disallowance u/s.14A has been restricted to the exempt income. In view of the above, the disallowance u/s. 14A is restricted to exempt income of Rs.25,32,679/= only.
