Case Law Details
Royal Twinkle Star Club Pvt. Ltd. Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that disallowance made under section 14A of the Income Tax Act cannot extent exempt income earned by the assessee. Accordingly, AO is directed to restrict the disallowance u/s. 14A to the extent of exempt income.
Facts- During the assessment proceedings, it was observed that the assessee has earned a dividend income of Rs.5,25,985, which was claimed as exempt. It was also observed that the assessee in its profit and loss account has debited an amount of Rs.2,59,55,000 as interest on loan, forming part of its financial cost. Further, the assessee in its balance sheet has shown a total investment of Rs.660,23,99,000. Accordingly, the assessee was asked to show cause as to why the disallowance under section 14A should not be made for the exempt income shown.
AO vide order dated 01/03/2016 passed under section 143(3) of the Act did not agree with the submissions of the assessee and computed the disallowance of Rs.2,59,40,898 under section 14A r/w Rule 8D. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.
Conclusion- We find that Hon’ble jurisdictional High Court in Nirved Traders (P.) Ltd. v/s Dy. CIT, I.T. Appeal No.149 of 2017, vide judgement dated 23.04.2019, has held that disallowance under section 14A of the Act cannot be more than exempt income. Thus, respectfully following the aforesaid decision of the Hon’ble jurisdictional High Court, we direct the AO to restrict the disallowance made under section 14A of the Act to the extent of exempt income earned by the assessee, during the year under consideration.
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