INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure incurred against earning of exempted income - Voluntary disallowance made by assessee was sufficient -

Assessee had earned exempt income against which assessee had made voluntary disallowance of expenses under second limb of rule 8D(2) of the rules. Assessee pleaded that separate books of account are maintained for his proprietary concern and for his personal activities. It was pleaded that in proprietary concern, no investments were made by the assessee and that all the investments were made only in the personal activities of the assessee. Accordingly, assessee pleaded before AO that no further disallowance of expenses under section 14A need to be made. Held: AO did not heed to the contentions of the assessee and directly proceeded to make disallowance by applying computation mechanism provided in 2nd and 3rd limbs of rule 8D(2) of the Rules and arrived at the disallowance and after reducing the voluntary disallowance made by the assessee, the net disallowance was made under section 14A in the assessment. This action of AO was upheld by CIT(A). Supreme Court in the case of Maxopp Investments (2018) 402 ITR 640 (SC) : 2018 TaxPub(DT) 1403 (SC) wherein it was held that disallowance under section 14A cannot exceed exempt income. Assessee before Tribunal was not seeking any reduction for disallowance of expenses made voluntarily which itself was more than the exempted income. Hence, there was no need to make any further disallowance under section 14A.

Followed:Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC) : 2018 TaxPub(DT) 1403 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2014-15

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