The Tax Publishers2020 TaxPub(DT) 5242 (Mum-Trib)

INCOME TAX ACT, 1961

Section 14A Read with Rule 8D

Disallowance under section 14A read with rule 8D cannot exceed the quantum of exempt income earned during the year. Accordingly, the AO was directed to restrict the disallowance under section 14A read with rule 8D to the exempt income earned by the assessee during the relevant year.

Disallowance under section 14A - Expenditure against exempt income - Whether disallowance can exceed quantum of exempt income earned during the year -

AO made disallowance under section 14A read with rule 8D. Assessee contended that before making such disallowance, the AO had not recorded any satisfaction. She further contended that the disallowance made under section 14A read with rule 8D could not exceed the exempt income earned during the year. Held: It was evident that the assessee suo-moto had not computed any disallowance under section 14A read with rule 8D, though she earned exempt income during the year. Therefore, in absence of any suo-moto disallowance made by the assessee in the return of income, the AO rightly proceeded for making disallowance under section 14A read with rule 8D. However, during the year under consideration, the assessee earned an amount of Rs. 1,302 as exempt income, whereas, the AO disallowed an amount of Rs. 2,03,746. It is well-settled that disallowance under section 14A read with rule 8D cannot exceed the quantum of exempt income earned during the year. Accordingly, the AO was directed to restrict the disallowance under section 14A read with rule 8D to Rs. 1,302.

REFERRED :

FAVOUR : Partly in favour of assessee

A.Y. : 2012-13


INCOME TAX ACT, 1961

Section 37(1)

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