DCIT , CHENNAI V. M/S SUMMIT ONLINE TRADE SOLUTIONS PRIVATE LIMITED , CHENNAI

ITA 837/CHNY/2022

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The case involves an appeal by the Deputy Commissioner of Income Tax, Central Circle-1(3), Chennai against M/s. Summit Online Trade Solutions Pvt. Ltd. concerning the assessment year 2018-19. The primary issue was the disallowance made under Section 14A read with Rule 8D of the Income Tax Rules, 1962, which pertains to expenses related to earning exempt income. The Assessing Officer had initially disallowed expenses amounting to Rs.1,73,64,658, but the CIT(A) reduced this amount to Rs.1,64,370, aligning the disallowance with the actual exempt income earned. The Revenue challenged this reduction, arguing that the disallowance should not be limited to the exempt income earned. However, the Tribunal, referencing the decision in M/s. Marg Ltd. vs CIT, upheld the CIT(A)'s decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127445 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-02-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 06-10-2022
• Other Referred Cases: M/s.Marg Ltd. vs CIT 120 taxmann.com 84
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

आयकर अपील य अ धकरण, ‘बी’ यायपीठ, चे नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI ी वी . द ु गा राव, या यक सद य एवं ी जी.मंज ु नाथ, लेखा सद य के सम$ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./I . T. A. No. 8 3 7/ Chn y/ 2 0 2 2 ( नधा रणवष / A ss e ss m en t Yea r : 2 01 8 - 19 ) Deputy Commissioner of Income Tax, Central Circle-1(3) Chennai V s M/s. Summit Online Trade Solutions Pvt.Ltd. Shop No.6, Ground floor, Rayala Towers, 781-785 Anna Salai, Chennai-600 002. PA N: A A L CS 8 09 8 J (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/ Appellant by : Mr. D.Hema Bhupal, JCIT यथ क ओरसे/Respondent by : Ms. N.V.Lakshmi, Advocate स ु नवाईक तार ख/D a t e o f h e a r i n g : 23.02.2023 घोषणाक तार ख /D a t e o f P r o n o u n c e m e n t : 23.02.2023 आदेश / O R D E R PER G.MANJUNATHA, AM: This appeal filed by the Revenue is directed against order passed by the Commissioner of Income Tax (Appeals)-18, Chennai, dated 06.07.2022 and pertains to assessment year 2018-19. 2. The Revenue has raised following grounds of appeal:- 1. The order of the Id. Commissioner of I.T. (Appeals) is erroneous on facts of the case and in law. 2 .1 The learned CIT (A) erred in restricting the 14A disallowance from Rs. 1,73,64,658/- to Rs. 1,64,370/-, whereas the actual disallowance was worked out, as per the provisions of section 14A read with 8D of the ITRules. 2.2 The Id. CIT(A) erred in restricting the disallowance made u/s.14A of the IT Act, to the extent of exempt income earned, when 2 ITA No. 837/Chny/2022 there is no express provisions in Section 14A and Rule 8D of the IT Rules, towards such restriction of the disallowance to the exempt income earned by the assessee. 2.3 The Id. CIT(A) erred in restricting the disallowance made u/s. 14A of the IT Act, to the extent of exempt income earned, without appreciating the fact that the assesee had average investments to the tune of Rs. 174 crores during the assessment year and further earning of exempt income is not the only criteria for effecting 14A disallowance, and the disallowance IS governed by Rule 8D of the IT Rules.” 3. Brief facts of the case are that the assessee company has filed its return of income for the assessment year 2018-19 on 12.10.2018 admitting total income of Rs.25,18,92,450/-. The case has been selected for scrutiny and assessment has been completed u/s.143(3) of the Income Tax Act, 1961 on 24.03.2021 and determined total income at Rs.27,79,08,891/- by making additions towards disallowance u/s.14A r.w. Rule 8D of Income Tax Rules, 1962, @ 1% of annual average of monthly opening and closing balance of value of investments for Rs.1,73,64,658/-. The assessee carried the matter in appeal before the First Appellate Authority and the learned CIT(A) for the reasons stated in their appellate order dated 06.07.2022, by following decision of the Hon’ble Madras High Court in the case of M/s.Marg Ltd. vs CIT 120 taxmann.com 84, restricted disallowances to the extent of exempt income earned for the 3 ITA No. 837/Chny/2022 relevant assessment year. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us. 4. The learned D.R submitted that the learned CIT(A) has erred in restricting disallowances computed u/s.14A of the Income Tax Act, 1961 r.w. Rule 8D I.T. Rules, 1962, to the extent of exempt income, without appreciating fact that as per provisions of section 14A of the Act, expenses relatable to exempt income should be disallowed, even in case where there is no exempt income for the relevant assessment year. 5. The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that it is well settled principles of law by the decision of the Jurisdictional High Court of Madras in the case of M/s. Marg Ltd. vs. CIT (supra), where it has been clearly held that disallowance u/s.14A cannot exceed exempt income. The learned CIT(A), after considering relevant facts has rightly restricted disallowance to the extent of exempt income earned for the relevant assessment year and therefore, their order should be upheld. 4 ITA No. 837/Chny/2022 6. We have heard both the parties, perused material available on record and gone through orders of the authorities below. During the financial year relevant to assessment year 2018-19, the assessee has earned exempt income of Rs.1,64,370/- and has also made suo-motu disallowance towards expenses relatable to exempt income u/s.14A for Rs.1,33,354/- . The Assessing Officer has disallowed expenses relatable to exempt income u/s.14A by invoking Rule 8D @ 1% of annual average of monthly opening and closing balance of value of investments and determined total disallowance of Rs.1,73,64,658/-. We find that the Hon’ble Jurisdictional High Court of Madras in the case of M/s. Marg Ltd. (supra) had considered an identical issue of disallowances u/s.14A r.w.Rule 8D and after considering relevant facts held that disallowances contemplated u/s.14A cannot exceed exempt income earned for relevant assessment year. The learned CIT(A), after considering relevant facts and also by following decision of the Hon’ble Jurisdictional High Court of Madras in the case of M/s.Marg Ltd.(supra) has rightly restricted disallowance to the extent of exempt income earned for the relevant assessment year. Thus, we are inclined to uphold 5 ITA No. 837/Chny/2022 findings of the learned CIT(A) and dismiss appeal filed by the Revenue. 7. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 23 rd February, 2023 Sd/- Sd/- (वी.द ु गा राव) (जी. मंज ु नाथ) (V.Durga Rao) (G.Manjunatha) #या यक सद&य /Judicial Member लेखा सद&य / Accountant Member चे#नई/Chennai, )दनांक/Dated 23 rd February, 2023 DS आदेश क त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आय ु .त (अपील)/CIT(A) 4. आयकर आय ु .त/CIT 5. ,वभागीय त न2ध/DR 6. गाड फाईल/GF.