INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - AO could not establish any nexus with expenses claimed by assessee vis-à-vis exempt income -

Assessee company received dividend of Rs. 4,33,649. AO sought explanation from assessee as to why disallowance under section 14A read with rule 8D should not be made with reference to the income claimed as exempt. Assessee submitted that no disallowance under rule 8D was warranted as the company had substantial own funds of Rs. 994.37 crore of which the investments made by the company are of Rs. 552.,69 crore only. Major investments of the company during the year amounted to Rs. 58 crore. The other investments of the company were investments in foreign companies which did yield any income not chargeable to tax. Similar investments which did not exist on being sold out, did not yield any exempt income. AO considering submissions of assessee noticed that assessee company had made huge investments of Rs. 3,39,52,80,000 and held that it was inconceivable that such a huge investment profile was managed without services of an accountant keeping track of investment made or communicating with the mutual fund investment intermediaries, or without utilizing printing and stationery or telephone, etc. Consequently, AO made disallowance under section 14A read with rule 8D.Held: AO could not establish any nexus with expenses claimed by assessee vis-à-vis exempt income. In the absence of same, presumptions could be drawn in favour of assessee and hence, disallowance was deleted.

Followed:<.b>UTV Software Communications Ltd. v. Asstt. CIT, ITA No.1258/Mum./ 2015, order dated 11-12- 2018.