INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D -

Assessee earned tax-free dividend income and made suo moto disallowance under section 14A. AO required assessee to explain as to why disallowance under section 14A read with rule 8D should not be made. Assessee filed explanation stating that all the investments were made on internal accruals and no borrowings were made for making any investments, no administrative expenses were incurred for earning of dividend. However, AO invoked rule 8D(2)(iii) and made disallowance. Assessee contended that AO failed to generate requisite satisfaction with regard to correctness of said claim of assessee. Held: AO while dislodging claim of assessee that no expense was relatable to earning of exempt dividend income ought to have made a mention of expenses which were booked by assessee in its books of account, and in the backdrop of same should have pointed out that incurring of same had an inextricable nexus with earning of exempt dividend income. Accordingly, disallowance made by AO under section 14A read with rule 8D was not as per mandate of section 14A(2) and, therefore, disallowance was deleted.

Followed:Godrej & Boyce Manufacturing Company v. Dy. CIT & Anr. (2017) 394 ITR 449 (SC) : 2017 TaxPub(DT) 968 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

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