INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Administrative expenses - Satisfaction of AO arrived at properly

AO was of the view that assessee had not maintained any account or record to show that no administrative expenditure had been incurred for the purpose of earning exempt income. The AO had cited instances of some administrative action such as the review of investment, monitoring of the activities of the company in which the assessee-company had made substantial investment by the directors of the assessee-company and employees, etc. Considering the aforesaid perspective, the salary paid by the assessee-company to those employees and directors have not been utilized exclusively for the purpose of the business. Accordingly, the AO had determined the disallowance of administrative expenditure as per 14A read with rule. 8D to the amount of Rs. 12,62,770 and added to the total income of the assessee. CIT(A) had partly allowed the appeal of the assessee. CIT(A) had confirmed the disallowance to the extent of Rs. 10,28,141 after excluding investment in the nature of mutual fund, etc.Held: There was no merit in the ground of appeal of the assessee that no satisfaction had been recorded by the AO before making disallowance under section 14A. However, after perusal of the information on record filed by the assessee, Tribunal observed that assessee had made investment in equity share of listed company's debentures, bond units of mutual fund, etc. and all these had been made through portfolio management consultant who had provided fullfledge services in that respect. Assessee had suo-motu disallowed an amount of Rs. 73,034 under section 14A. However, looking to the quantum of exempt income and investment made by the assessee it would be appropriate to restrict the disallowance out of administrative expenditure to the amount of Rs. 3,00,000.

REFERRED :

FAVOUR : In assessee's favour (partly).

A.Y. : 2013-14 & 2014-15

INCOME TAX ACT, 1961

Section 115JB Section 14A

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