The assessee had not debited any expenditure nor claimed any expenditure for earning exempt income. On presumptive basis expenditure could not be calculated for disallowance. By applying the formula given in rule 8D read with S.14A, the AO had worked out an estimated disallowance at Rs.4,40,120. The rationality of estimating an expenditure of Rs.4,40,120 for earning a meagre dividend income of Rs.16,362 was unclear. The AO is directed to restrict disallowance under S.14A to the extent of exempt income earned by the assessee, i.e., Rs. 16,362. As regards excess expenditure, disallowance is confirmed. (AY. 2011-12)
Baroda District Co-Op. Milk Producers Union Ltd. v. ACIT (2020) 77 ITR 87 (SN) (Ahd.)(Trib.)
S. 14A : Disallowance of expenditure-Exempt income–Neither debiting any expenditure nor claiming any expenditure–Expenditure cannot be disallowed on presumptive basis-Disallowance is restricted to exempt income–Claiming excess expenditure– Disallowance is confirmed. [S. 80P(2)(iv), R.8D]