S. Vinodkumar Diamonds, Pvt Ltd. Vs DCIT (ITAT Mumbai)
The issue under consideration is whether the disallowance u/s 14A can exceed the exempt income?
ITAT states that during the year under consideration the assessee has earned exempt income of Rs. 1.62 lakhs only. The AO disallowed interest expenses under Rule 8D(ii) of Rs. 30,13,853/-. They have perused the profit and loss account of the assessee copy of which is available in the paper book filed by the assessee. They have noted that the assessee’s reserves and surpluses as on 31.03.2007 is Rs. 93.24 Crore and share capital of Rs. 9.8 Crore. The total investment as per schedule 6 of profit and loss account is only Rs. 4.98 Crore. Moreover, most of the investments were made in past. Considering the decision of Jurisdictional High Court in HDFC Bank (supra) and Reliance Utility (supra) no disallowance under Rule 8(D)(ji) is warranted in case the reserve and surplus of the assessee are in far excess to the investment made by the assessee. The window for disallowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to tax exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. Further, considering the fact that disallowance u/s 14A of the Act cannot exceed the exempt income in view of the decision of Bombay High Court in PCIT Vs. HSBC Invest Direct (India) Ltd (supra), ITAT direct the AO to restrict the disallowance u/s 14A of the Act at Rs. 1.62 lakhs only. Accordingly the appeal filed by the assessee allowed.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal by the assessee is directed against the order of Commissioner of income Tax-15 [Ld. CIT(A)], Mumbai, dated 10.10.2014 for the assessment year (A.Y.) 2009-10. The assessee has raised the following grounds of appeal:
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2. Brief facts of the case are that the assessee is a company, engaged in the business of manufacturing, selling and marketing of cut and polished diamonds. The assessee filed its return of income for the A.Y 2009-10 on 29.09.2009, declaring income of Rs. 7,86,19,210/- under the normal provisions of the Act. Along with the return of income, the assessee furnished a report in Form–3CEB and reported following international transactions with its associated enterprises (AE).
