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| The Tax Publishers2020 TaxPub(DT) 2513 (Mum-Trib) INCOME TAX ACT, 1961
Section 14A read with rule 8D(2)(i)
Where demat charges were related to assessee's Share Broker business and were unrelated to earning of exempt income and as regards interest expenditure, assessee showed from the Balance Sheet that own funds of the assessee were much more than the investments made, disallowance made under rule 8D(2)(i) & (ii) were uncalled for and in so far as disallowance under rule 8D(2)(iii) was concerned, assessee had made suo motu disallowance, since disallowance under section 14A read with rule 8D(2)(iii) cannot exceed the exempt income earned, therefore, appeal was dismissed on this ground.
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Disallowance under section 14A - Dividend income - Assessee made suo motu disallowance under section 14A -
Assessee received dividend income and made suo motu disallowance for earning exempt income. AO made further disallowance as direct expenditure under rule 8D(2)(i) of the Income Tax Rules, 1962. AO had erred in holding that Demat charges paid by the assessee were in relation to earning of exempt income. Assessee submitted that Demat account was held by assessee under Broker Pool Account, connected with assessee's share broking business and hence, the same were allowable as business expenditure. Assessee further pointed that apart from above, AO disallowed a sum under rule 8D(2)(ii) as interest expenditure and under rule 8D(2)(iii). Held: For disallowance under rule 8D(2)(i) and (ii), the disallowance made by AO was unwarranted. Demat charges were related to assessee's Share Broker business and were unrelated to earning of exempt income. As regards interest expenditure, assessee showed from the Balance Sheet that own funds of the assessee were much more than the investments made. It is a well settled legal proposition that were both, interest bearing and own interest free funds were available, it should be presumed that investments were made from own funds. Hence, disallowance made under rule 8D (2)(i) & (ii) were uncalled for. In so far as disallowance under rule 8D(2)(iii) was concerned, assessee had made suo motu disallowance. Apex Court in the case of PCIT v. State Bank of Patiala 2018 TaxPub(DT) 7545 (SC) : (2018) 259 Taxman 314 (SC) had approved that disallowance under section 14A read with rule 8D(2)(iii) cannot exceed the exempt income earned. Therefore appeal was dismissed on this ground.
Applied:Hero Cycles (P.) Ltd. v. CIT (Central) (2015) 379 ITR 347 (SC) : 2015 TaxPub(DT) 4897 (SC) Principal CIT v. State Bank of Patiala (2018) 259 Taxman 314 (SC) : 2018 TaxPub(DT) 7545 (SC)
REFERRED :
FAVOUR : Against the assessee
A.Y. : 2012-13
INCOME TAX ACT, 1961
Section 37(1)
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