INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Assessee earned dividend income - Investments made out of own funds -

Assessee was engaged in business of manufacturing of pesticides, insecticides, herbicides and fertilizers. During the course of scrutiny assessment proceedings, AO noticed that assessee had earned dividend income and share of profit from M/s M and claimed the same as exempt from tax. Invoking provisions of section 14A, AO asked assessee to give working of disallowance under section 14A. Assessee claimed that no expenses were liable to be disallowed contending that the investment in mutual funds and partnership firms were made out of issue of equity, including FDI raised and no borrowed funds were used for the purpose. Held: Facts clearly showed that entire investments have been made out of own funds and no borrowed funds have been used. However, for earning exempt income, some expenditure needs to be disallowed. Considering the facts of the case in totality, a disallowance of part amount should meet the ends of justice. Accordingly, AO was directed to restore the disallowance under section 14A upto the part amount.

Relied:Chambal Fertilisers & Chemicals Ltd. v. Jt.CIT [ITA No. 52/2018, dated 31-7-2018] : 2018 TaxPub(DT) 5619 (Raj-HC), Shree Balaji Alloys v. CIT (2011) 333 ITR 335 (J & K) : 2011 TaxPub(DT) 0882 (J&K-HC), Crystal Crop Protection (P) Ltd. v. Dy.CIT 2019 TaxPub(DT) 8386 (Del-Trib) Montage Enterprises Pvt. Ltd. v. Dy. CIT ITA No. 5124/DEI/2011, dated 29-06-2018 : 2018 TaxPub(DT) 4191 (Del-Trib) and CIT & Anr v. Shree Balaji Alloys 2016 TaxPub(DT) 3528 (SC).

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2012-13

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