INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D - Assessee pleading non-recording of dissatisfaction by AO

Assessee earned exempt dividend income of Rs. 35,35,409 and made suo motu disallowance of Rs. 67,416 under section 14A. AO invoked rule 8D and worked out disallowance amounting to Rs. 20,96,334 on account of administrative expenses. Assessee challenged this on the ground of non-recording of dissatisfaction by AO as to correctness of assessee's claim.Held: AO in the assessment order clearly stated that assessee had not maintained any record to demonstrate that no administrative expenditure was incurred for the purpose of earning exempt income. AO also cited instances of administrative expenditure such as the review of investment, monitoring of the activities of the company in which assessee company made substantial investment by the director of the assessee company and employees of assessee company etc. There fore, salary paid by assessee company to those employee and the director who have devoted their time towards investment activities were not utilised exclusively for the purpose of business of the company. Therefore, it could not be said that no satisfaction was recorded by AO before making disallowance under section 14A. However, after perusal of the information on record filed by the assessee it was clear that assessee had made investment in equity share of listed company's debentures, bond units of mutual fund, etc. and all these were made through portfolio management consultant who had provided full fledge services in that respect. The assessee had suo motu disallowed an amount of Rs. 67,416 under section 14A. However, looking at 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 : Partlyin assessee's favour.

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 14A Section 115JB

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