INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Applicability of rule 8D -

AO made disallowance of Rs. 14.61 lakhs in terms of rule 8D(2)(iii) read with section 14A in relation to indirect expenses incurred by assessee-company for earning exempt income. Further, Tribunal retained Rs. 6.61 lakhs by giving relief to the assessee to the extent of Rs. 8 lakhs on the ground that rule 8D could not be applied blindly when the assessee hardly incurred any expenses in relation to the dividend earned and substantial investments were made temporarily in order to park the idle funds. Aggrieved, Revenue filed an appeal on the ground that once in the facts of the case, rule 8D applies, the Tribunal, thereafter had no discretion to restrict or reduce the disallowance.Held: The High Court was not inclined to admit the instant appeal. Firstly because the disputed amount itself was not very substantial and secondly, though not so clearly stated, the view of the Tribunal could as well be understood and interpreted as one holding that the facts necessary for applicability of rule 8D, did not arise in the subject case. Further, section 14A(2) provides that AO would determine the amount of expenditure incurred in relation to income which does not form part of the total income if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. If the expenditure already voluntarily disallowed by the assessee was found to be reasonable, the AO in any case could not have resorted to rule 8D. Accordingly, the order passed by Tribunal was upheld.

REFERRED :

FAVOUR : Partly in favour of assessee.

A.Y. :

INCOME TAX ACT, 1961

Section 37(1)

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