Case Law Details
Sara International Private Limited Vs ACIT (ITAT Delhi)
ITAT Delhi held that it is settled principle of law that the disallowance under section 14A of the Income Tax Act cannot exceed the exempt income.
Facts- The assessee company is engaged in the trading of iron ore fines, cement, coal, readymade garment, etc. AO observed that the assessee had made huge investments in various quoted and unquoted shares and also paid huge interest on its borrowings. AO concluded that assessee had earned three types of exempt income i.e. Dividend claimed as exempt- Rs.5,56,500/-; Long Term Capital gain on sale of shares- Rs. 1,31,42,773/- and Long term capital gain on conversion of capital asset on which tax has been paid during the year as per the computation of income- Rs.20,56,02,471/-.
Accordingly, AO proceeded to apply the computation mechanism provided in Rule 8D (2) (ii) of the Income Tax Rules for making disallowance u/s 14A of the Act. CIT(A) having appreciated the contentions of the assessee proceeded to confirm the disallowance of expenses u/s 14A of the Act to the extent of suo moto disallowance made by the assessee in the sum of Rs.56,98,750/-, on the ground that the same had been offered voluntarily by the assessee in the return of income. Being aggrieved, both assessee and revenue has preferred the present appeal.
Conclusion- Held that the law is very well settled that the disallowance u/s 14A of the Act cannot exceed the exempt income. We find that the instant case, the exempt income is only Rs.5,56,500/-. Hence, the disallowance u/s 14A of the Act cannot exceed Rs.5,56,500/-.
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