INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - AO did not give any reason for rejecting assessee's claim that it did not incur any expenditure for earning exempt income -

Assessee-company was engaged in business of dealing in shares, Government Securities and PSU Bonds. It earned dividend income during the year and claimed that no expenditure was incurred in earning such dividend income. However, AO dissatisfied with the claim of the assessee, disallowed the expenditure alleging that the assessee debited some Demat charges and therefore, disallowance under section 14A read with rule 8D was applicable in case of the assessee. It was submitted on behalf of the assessee that the only reason for disallowance under section 14A was that the auditor of the assessee in the tax audit report had disallowed Demat charges under section 14A, which was never incurred for earning dividend income. It was further submitted that the AO neither recorded any nexus between the exempt income and the expenditure disallowed by him nor recorded his dissatisfaction with reference to the claim of the assessee. Held: AO had not given any reason why he was not satisfied with the explanation rendered by the assessee and simply remarked that he was not accepting the claim of assessee that it did not incur any expenditure for earning exempt income. Therefore, it would be said that the soul of the order was absent in instant case as the AO did not provide any reason for rejecting the assessee's claim. A bald assertion by the AO that he was not accepting the assessee's claim could not be justified. He had not applied his mind while dealing the issue and his action smack of arbitrariness, would make his action unsustainable. Therefore, the addition made under section 14A read with rule 8D was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

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