INCOME TAX ACT, 1961

Section 14A Rule 8D(2)(iii)

Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D(2)(iii) - Assessee's method of computing disallowance being fair and scientific

Assessee earned tax free dividend income and made disallowance under section 14A of Rs.16 lakhs out of Telephone Expenses, stationery expenses and salary expenses. AO invoked rule 8D(2)(iii) and worked out additional disallowance of Rs. 109 lakhs. Assessee, as an alternative, proposed disallowance of Rs. 24 lakhs. Held: From perusal of assessee's computation, it was quite evident that assessee had identified composite expenditure under each head and apportioned the composite expenditure in the ratio of exempt income vis-a-vis total receipts during the year. Employee cost had separately been apportioned on the basis of time devoted by certain employees which could be said to have been engaged in investment activities. This method of computing disallowance was very fair, reasonable and scientific and therefore, was to be accepted. Aggregated disallowance under rule 8D(2)(iii) was accepted at Rs. 24 lakhs. Since assessee had already disallowed a sum of Rs. 16 lakhs in its computation of income, net disallowance would work out to Rs. 8 lakhs.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2011-12

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