Case Number: ITA 684/DEL/2021
Appellant: DCIT, Central Circle-13, New Delhi
Respondent: Minda Industries Ltd, New Delhi
Assessment Year: 2016-17
Case Filed on: 2021-06-10
Order Type: Final Tribunal Order
Date of Order: 2022-09-07
Pronounced on: 2022-09-07
This case involves the Deputy Commissioner of Income Tax (DCIT), Central Circle-13, New Delhi, and Minda Industries Ltd, New Delhi. The primary issue under consideration is the disallowance under Section 14A of the Income Tax Act for the assessment year 2016-17. The case examines whether the disallowance of expenses related to exempt income should be capped at the amount of exempt income earned.
Minda Industries Ltd is engaged in the business of manufacturing automobile and auto parts. For the assessment year 2016-17, the company filed its return of income electronically on 29.11.2016, declaring a total income of Rs. 58,28,32,260/-. The case was selected for scrutiny, and the assessment was framed under Section 143(3) of the Income Tax Act on 30.12.2019, determining the total income at Rs. 60,19,58,590/-.
During the assessment proceedings, the Assessing Officer (AO) observed that Minda Industries Ltd had shown investments amounting to Rs. 194,64,78,517/- and exempt income of Rs. 7,46,29,402/-. The AO applied the provisions of Section 14A of the Income Tax Act, disallowing Rs. 1,94,64,785/- under Rule 8D of the Income Tax Rules.
Aggrieved by the AO’s order, Minda Industries Ltd appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) partially upheld the AO’s disallowance but capped the disallowance at Rs. 16,15,360/- based on the investments that yielded exempt income, after considering the suo moto disallowance of Rs. 3,38,450/- made by the assessee.
The Revenue appealed the CIT(A)’s order, raising the following grounds:
The ITAT Delhi Bench, comprising Sh. Anil Chaturvedi (Accountant Member) and Sh. Challa Nagendra Prasad (Judicial Member), heard the appeal on 30.08.2022 and pronounced the order on 07.09.2022. The Tribunal’s key findings were as follows:
The Tribunal observed that the CIT(A) had correctly worked out the disallowance under Section 14A r.w.r 8D by considering only those investments that yielded exempt income. This approach aligned with judicial precedents, and there was no reason to interfere with the CIT(A)’s order.
The Tribunal dismissed the Revenue’s appeal, upholding the CIT(A)’s order. The disallowance under Section 14A was correctly capped based on the investments that generated exempt income.
This ruling underscores the importance of accurately determining disallowances under Section 14A by considering only those investments that yield exempt income. The decision reinforces the principles established in judicial precedents and highlights the need for Revenue authorities to adhere to these principles when making disallowances.
In the detailed analysis of the procedural background, the Tribunal reviewed the sequence of events leading to the assessment and subsequent appeals. The initial assessment was framed under Section 143(3), with the AO making significant disallowances under Section 14A based on the application of Rule 8D.
The AO’s assessment orders were challenged by Minda Industries Ltd, leading to a partial relief granted by the CIT(A). The CIT(A) re-evaluated the disallowance, applying a more precise calculation method that aligned with judicial precedents.
The Tribunal referred to the Delhi High Court’s decision in Caraf Builders & Constructions (P.) Ltd., which provided a clear guideline on the application of Section 14A r.w.r 8D. The Tribunal also considered the Supreme Court’s decision in CIT v Rajendra Prasad Moody, emphasizing that expenditure incurred for earning income should be allowed regardless of the actual income earned.
The final judgment emphasized that the CIT(A)’s approach to disallowance under Section 14A was legally sound and aligned with judicial precedents. The Tribunal upheld the CIT(A)’s order, dismissing the Revenue’s appeal and providing a clear precedent for similar cases.
This case highlights the importance of judicial consistency and adherence to legal precedents in tax assessments. The Tribunal’s ruling reinforces the principles of accurate and fair disallowance calculations under Section 14A, ensuring that only relevant investments yielding exempt income are considered. The decision serves as a significant precedent for future cases involving disallowances under Section 14A and the application of Rule 8D.
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