INCOME TAX ACT, 1961

Section 14A Rules 8D

Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D--Interest and administrative expenses--Assessee pleading to having sufficient own funds and to have made only strategic investments - AO made disallowance in excess of exempt income

Assessee earned tax free dividend income on investments in shares but claimed no suo motu disallowance under section 14A. AO invoked rule 3D and disallowed interest and administrative expenses. Assessee contended that it had only made strategic investments that to out of free reserves. Further, disallowance in excess of exempt income made by AO was not sustainable. Held : So far as availability of own funds and its impact in computing disallowance under section 14A was concerned. AO was directed to re-compute disallowance keeping in view judicially settled aspects Following decision in HDFC Bank v. DCIT & Ors. dated 25-2-2016 : 2016 TaxPub(DT) 1316 (Bom-HC) r/w CIT v. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom.) : 2014 TaxPub(DT) 3351 (Bom-HC), ensuring that disallowance could not exceed exempt income earned and ensuring that Strategic investment not earning dividend, if any, had to be eliminated before computing disallowance.

REFERRED : Maxopp Investment Ltd. & Anr. v. CIT & Anr. 2018 TaxPub(DT) 1403 (SC) : (2018) 91 taxmann.com 154 (SC), HDFC Bank Ltd. v. Dy. CIT & Ors. dated 25-2-2016 : 2016 TaxPub(DT) 1316 (Bom-HC)

FAVOUR : Partly in assessee's favour (by way of remand)

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 114A Section 115JB

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