Disallowance under Section 14A is limited to exempt income
Fact and issue of the case
These cross appeals of the Assessee as well as Revenue arises out of the common order of the Learned Commissioner of Income Tax (Appeals)-28, New Delhi, [hereinafter referred to as ‘Ld. CIT(A)’] in Appeal No.82/17-18 dated 21/12/2018 against the order passed by Additional Commissioner of Income Tax, Range-22, New Delhi, (hereinafter referred to as the ‘Ld. AO’) u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 28/12/2016 for Assessment Year 2014-15.
The following grounds raised by assessee as well as Revenue in the cross appeals: ITA No.3307/Del/2019 by assessee.
That the Learned Commissioner of Income Tax (Appeals) has erred in confirming disallowance of Rs. 5698750/- u/s 14A of the Act, which was inadvertently voluntarily added by the assessee in the computation of income for the year.
That the Learned Commissioner of Income Tax (Appeals) failed to restrict the disallowance u/s 14A to the extent of dividend income of Rs. 556500/- and did not appreciate that the department cannot take the benefit of a mistake committed by the assessee.
That the Learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of Rs. 1164626/- on account of Commission and brokerage, with total disregard to the facts and circumstances of the case.
The assessee reserves his right to add, amend, alter or delete any ground of appeal at the time of hearing.”
ITA No.1974/Del/2019 by Revenue.
Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 1,69,15,250/- made u/s 14A of the IT Act, 1961.
Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in ignoring the fact that the assessee company has invested its borrowed money for such investment of shares, stocks and mutual funds and other investments, as is evident from increasing expenses under the head ‘interest’ which are capable of generating income which does not or shall not from part of total income of the assessee.
Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 8,11,917/- made on account of Wharfage Charges expenses.”
Observation of the court
The Ld. AR before us stated that the payments were made by account payee cheque to the aforesaid two parties after due deduction of tax at source and pleaded for allowability of the said expenditure as incurred for the purpose of business. In our considered opinion, it is fact on record that whether these payees had indeed actually rendered any services to the assessee to enable them to get payment of commission from the assessee is a fact to be examined by the Ld. AO. Once, it is proved that these two payees had indeed rendered services to the assessee, then the commission expenditure become allowable expenditure. With these directions, we deem it fit to appropriate to restore this issue to the file of the Ld. AO to decide the same in view of the above mentioned directions. The assessee is also at liberty to furnish fresh evidences, if any, in support of its contentions. Accordingly, the ground No.3 raised by the assessee is allowed for statistical purposes.
The ground No.4 raised by the assessee is general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is partly allowed for statistical purposes and appeal of the Revenue is partly allowed.
Order pronounced in the open court on 13th October, 2023.
Read the full order rom hereSara-International-Private-Limited-Vs-ACIT-ITAT-Delhi2