{"id":2337,"date":"2010-12-07T22:27:13","date_gmt":"2010-12-07T16:57:13","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=2337"},"modified":"2010-12-07T22:27:13","modified_gmt":"2010-12-07T16:57:13","slug":"minda-investments-vs-dcit-itat-delhi-s-14a-disallowance-has-to-be-on-basis-of-nexus-between-income-expenditure-not-on-adhoc-estimate-basis","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/minda-investments-vs-dcit-itat-delhi-s-14a-disallowance-has-to-be-on-basis-of-nexus-between-income-expenditure-not-on-adhoc-estimate-basis\/","title":{"rendered":"Minda Investments vs. DCIT (ITAT Delhi)"},"content":{"rendered":"\n\n
Click here to download the judgement (minda_investment_14A_adhoc_disallowance.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n

S. 14A disallowance has to be on basis of nexus between income & expenditure & not on adhoc estimate basis <\/p>\n

<\/strong><\/p>\n

For AY 2006-07, the assessee earned exempt dividend income of Rs. 70 lakhs and claimed that as no expenditure<\/strong> had been incurred to earn the dividend, s. 14A disallowance was not permissible<\/em>. The AO held that some expenditure had been incurred to earn the dividend and made a disallowance u\/s 14A on an estimated basis<\/strong>. The CIT(A) followed the judgement of the Special Bench in Daga Capital<\/a><\/strong> 26 SOT 603 and directed the AO to compute the disallowance under Rule 8D on the basis that Rule 8D was retrospective. On appeal by the assessee, HELD allowing the appeal:<\/p>\n

(i) In CIT vs. Hero Cycles<\/a><\/strong> 323 ITR 518 (P&H) it was held that disallowance u\/s 14A required finding of incurring of expenditure<\/em><\/strong> and where it was found that for earning exempted income no expenditure had been incurred, disallowance u\/s 14A could not stand<\/strong><\/em>. On the other hand, in Godrej Boyce Mfg. Co<\/a><\/strong> 328 ITR 81 (Bom) it was held that the AO could adopt a reasonable basis to identify the expenses<\/strong> in relation to the earning of exempt income;<\/p>\n

(ii) Rule 8D does not apply to AY 2006-07. The assessee has urged that no expenditure has been identified to have been incurred to exempt income<\/strong>. Neither the AO nor the CIT (A) has rebutted this submission<\/strong>. The AO has made an adhoc estimate which is not sustainable<\/strong> in the light of Hero Cycles<\/a><\/strong>. Accordingly, in view of Vegetable Products<\/strong> 88 ITR 192 where it was held that if two constructions are possible, one favouring the assessee should be adopted, the precedent laid down in Hero Cycles<\/a> should be followed<\/strong>. <\/p>\n

\nSee Also: Godrej Agrovet Ltd vs. ACIT<\/a><\/strong> (ITAT Mumbai)\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The assessee has urged that no expenditure has been identified to have been incurred to exempt income<\/strong>. Neither the AO nor the CIT (A) has rebutted this submission<\/strong>. The AO has made an adhoc estimate which is not sustainable<\/strong> in the light of Hero Cycles<\/a><\/strong>. Accordingly, in view of Vegetable Products<\/strong> 88 ITR 192 where it was held that if two constructions are possible, one favouring the assessee should be adopted, the precedent laid down in Hero Cycles<\/a> should be followed<\/strong><\/p>\n

Read more ›<\/a><\/div>\n

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