INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Application of rule 8D -

Assessees made investment in shares and mutual funds and also claimed a sum paid towards interest, bank and demat charges. AO observed that assessee failed to file the specific utilisation of the loan received and interest paid thereon, other than a mere statement that 'the entire loan funds taken were deployed in earning of taxable income'. According to AO, the assessee failed to file any supporting documentary evidences that the loan received was not utilized for any investment, which earned him exempt income. Further, the AO noted that the assessee also failed to prove that all such investments were exclusively from his own funds, and not from the common kitty of funds. Therefore, according to AO, since such expenses could not be segregated, disallowance under section 14A read with rule 8D would be applicable in assessee's case and such interest expense would be considered for calculation of disallowance under section 14A, read with rule 8D. Held: It was noted that assessee deployed own funds to the tune of Rs. 4.39 crores and investment to earn exempt income was only to the tune of Rs. 46 lacs, therefore, no disallowance was needed to be made under rule 8D(2)(ii). Further, in respect of disallowance under rule 8D(2)(iii), the AO was directed to compute 0.5% on the investment on which the assessee earned dividend income.

Relied:CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom.): 2009 TaxPub(DT) 1275 (Bom-HC) and REI Agro Ltd. (2013) 144 ITD 141 (Kol-Trib) : 2013 TaxPub(DT) 2256 (Kol-Trib)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Sections 22 & 23

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