Section 14A r.w.r. 8D: Disallowance cannot exceed exempted income

DCIT Vs Amazon Textiles Pvt. Ltd. (ITAT Ahmedabad)

In the case of DCIT vs. Amazon Textiles Pvt. Ltd. (ITAT Ahmedabad), the primary issue revolves around the disallowance made under section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules. The dispute involves the quantum of disallowance and whether it can exceed the amount of exempted income.

Facts of the Case:

• The assessee, a private limited company, filed its return of income declaring income from capital gains and business/profession.
• The assessee made a suo-moto disallowance of Rs. 13,40,46,115 under section 14A of the Act.
• The Assessing Officer (AO), however, computed the disallowance under Rule 8D at Rs. 17,69,28,311.
• The AO, considering the difference between the disallowance made by the assessee and the computation under Rule 8D, added Rs. 4,28,82,196 to the total income of the assessee.

Grounds of Appeal: The Revenue challenged the order of the Ld. CIT(A) on the grounds that the disallowance of Rs. 4,28,82,196 was incorrectly deleted.

Ld. CIT(A)’s Decision:

• The Ld. CIT(A) deleted the addition made by the AO, stating that the disallowance made by the assessee exceeded the exempt income earned.
• Citing the decision in the case of Corrtech Energy Pvt. Ltd. vs. CIT, it was emphasized that the AO cannot make a disallowance exceeding the exempt income.

Delay in Filing Cross Objection (CO):