On June 12, 2023, the Income Tax Appellate Tribunal, Delhi ‘B’ Bench delivered a final verdict in the case ITA No. 2850/DEL/2022 concerning the assessment year 2017-18 between DCIT, Central Circle-1, New Delhi and Blue Coast Hotels Ltd, New Delhi. This case revolves around the contentious issue of disallowance under Section 14A read with Rule 8D of the Income Tax Act.
The Department of Income Tax, represented by Ms. Parmita M. Biswas, CIT-DR, contested the order by the Commissioner of Income Tax (Appeals), which had significantly reduced the disallowance made by the Assessing Officer from Rs. 2,31,39,000 to just Rs. 99,693, matching the dividend income actually received by the assessee.
The appellant contended that the disallowance computed by the Assessing Officer was erroneously high as it did not proportionately reflect the exempt income, which was merely Rs. 99,693. On the other hand, the assessee’s representative, Ms. Akansha Birla, CA, argued that the exempt income was minimal and the disallowance should be equally restrictive.
Delving into the judicial precedents and the facts of the case, the tribunal, led by Shri N.K. Billaiya, Accountant Member, and Shri Anubhav Sharma, Judicial Member, upheld the CIT(A)’s decision. They referred to the landmark judgement of Caraf Builders & Constructions [P] Ltd 414 ITR 122, which held that disallowance under Section 14A cannot exceed the exempt income. This principle was decisively applied to the present case, supporting the assessee’s stance.
The tribunal’s ruling reaffirmed the application of limits on disallowance under Section 14A relative to the actual exempt income. This decision is crucial for taxpayers with minimal exempt income as it prevents disproportionate disallowance that could unfavorably affect their financial reporting and tax liabilities. The final judgment, pronounced on June 12, 2023, thereby dismisses the appeal by the revenue, confirming that disallowance should not exceed the exempt income.
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