|CORAM:||Beena Pillai (JM), T. S. Kapoor (AM)|
|SECTION(S):||14A, Rule 8D|
|CATCH WORDS:||Disallowance u/s 14 & Rule 8D, exempt income|
|DATE:||September 1, 2015 (Date of pronouncement)|
|DATE:||November 26, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 14A/ Rule 8D: The AO must give reasons before rejecting the assessee's claim. He must establish nexus between the expenditure & the exempt income. The disallowance cannot exceed the exempt income|
(i) The AO has neither recorded his satisfaction nor given reasons as to how the claim of expenditure in relation to tax free income has not been correctly made by the assessee as envisaged under section 14A(2). The AO has mechanically invoked Rule 8D. Sub-section (2) of section 14A of the Act provides the manner in which the AO is to determine the amount of expenditure incurred in relation to income, which does not form part of the total income.
(ii) The AO has not established any nexus between the investments made and the expenditure incurred under the head interest expenditure and administrative expenses, before disregarding the disallowance suo moto made by the assessee u/s 14A of the Act vis a vis the dividend income earned amounting to Rs.68,088/-.
(iii) Even the CIT(A) has not compensated for the deficiency by the A.O in recording proper satisfaction. The CIT(A) has restricted the disallowance to an extent of Rs. 9.79 lacs. The CIT(A) fails to appreciate the reasonableness of expenditure that has been disallowed viz-a-viz the exempt income in the light of the judgment of Maxopp Investments Ltd. vs. CIT (2012) 374 ITR 272. We, restrict the disallowance to 10.23 lacs as calculated by the assessee.
(iv) The Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd., Vs. CIT, vide its order dated 25.02.2015, has held that disallowance u/s.14A cannot exceed the amount of exempt income. The Delhi High Court in the case of Holcim India Pvt.Ltd., reported in (2014) 272 CTR 282(Del), has held that there can be no disallowance u/s. 14A in the absence of any exempt income. The rationales behind these judgments are that, the amount of disallowance should not exceed the exempt income.