Case Number: ITA 1293/DEL/2021
Appellant: SKG Engineering Pvt Ltd., New Delhi
Respondent: DCIT, Circle 23(2), New Delhi
Assessment Year: 2017-18
Case Filed on: 2021-09-30
Order Type: Final Tribunal Order
Date of Order: 2023-05-09
Pronounced on: 2023-05-09
In the case of SKG Engineering Pvt Ltd. vs. DCIT, Circle 23(2), New Delhi, the appellant, SKG Engineering Pvt Ltd., challenged the disallowance of expenses made under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962, for the assessment year 2017-18. The appeal was heard by the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘H’, comprising Judicial Member Shri Saktijit Dey and Accountant Member Shri M. Balaganesh.
The dispute arose when the Assessing Officer (AO) made a disallowance of Rs. 9,22,232/- under Section 14A of the Income Tax Act, 1961, applying the computation mechanism provided in Rule 8D of the Income Tax Rules, 1962. This disallowance was made on the grounds that the assessee had earned exempt dividend income amounting to Rs. 43,73,129/- but had not disallowed any expenses incurred to earn this exempt income. The disallowance was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi.
The appellant, represented by Advocate Shri A.T. Panda, raised the following grounds:
After considering the arguments from both parties, the Tribunal found that the AO had not recorded any satisfaction as required under Section 14A(3) of the Income Tax Act. The Tribunal noted that the AO directly resorted to applying the computation mechanism provided in Rule 8D without providing cogent reasons for rejecting the assessee’s claim.
The Tribunal referred to the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd., 402 ITR 640, which mandates that the AO must record an objective satisfaction with cogent reasons as to why the claim of the assessee that no expenses were incurred for earning exempt income is incorrect.
In this case, the AO had not provided such satisfaction, making the disallowance unsustainable. The Tribunal also noted that the total expenses claimed under ‘Other sources’ included both taxable and exempt income, further complicating the AO’s blanket disallowance.
The Tribunal allowed the appeal, directing the AO to delete the disallowance made under Section 14A for the lack of recording satisfaction. The final judgment was pronounced in the open court on 09/05/2023.
Order:
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 09/05/2023.
Signed:
Saktijit Dey
Judicial Member
M. Balaganesh
Accountant Member
Dated: 09/05/2023
Copy forwarded to:
Assistant Registrar
ITAT, New Delhi
SKG Engineering vs. DCIT: Disallowance of Expenses under Section 14A for AY 2017-18
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