INCOME TAX ACT, 1961

Section 14A Section 8D

Disallowance under section 14A - Expenditure against exempt income - Administrative expense under rule 8(2)(iii) and interest under rule 8D(2)(ii) -

During the year under consideration the assessee earned dividend income of Rs. 5,229, which the assessee claimed to be an exempt income under section 10(34). During the assessment proceedings, on being confronted regarding disallowance of expense relatable to earning of exempt income under section 14A read with rule 8D, the assessee company submitted that no expense was incurred for earning exempt income and no borrowed fund was utilised for making investment in shares. However, the AO rejected the explanation given by the assessee and held that assessee had failed to establish that no borrowed fund was utilised for making investment in shares. Therefore, assessing officer relying on the CBDT's Circular No. 5 of 2014, computed the disallowance under section 14A read with rule 8D. The AO made addition under rule 8D(2) (ii) at Rs. 21,40,709 and under rule 8D (2) (iii) at Rs. 1,35,866, aggregating to Rs. 22,76,575. CIT(A), deleted the impugned addition made by the AO. Held: Assessee company had its own funds which was more than investments made by it, therefore disallowance under rule 8D (2) (ii) can not be made. However, disallowance under rule 8D (2) (iii) can be made only in respect to dividend bearing securities. Assessee had submitted a calculation sheet during the appellate proceedings, in which disallowance in accordance with the ratio decided in the case of REI Agro had been made at Rs. 4,832. Accordingly, CIT(A) had rightly restricted the disallowance to the tune of Rs. 4,832. That being so, Tribunal decline to interfere in the order passed by the CIT(A). His order on this issue was thus, upheld.

Followed:REI Agro Ltd. v. DCIT (2013) 144 ITD 141 (Kol-Trib) : 2013 TaxPub(DT) 2256 (Kol-Trib) affirmed as correct by the Calcutta High Court in G.A. No. 3581 of 2013

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 36(va) Section 2(24)(x)

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