| The Tax Publishers2021 TaxPub(DT) 5927 (Mum-Trib) INCOME TAX ACT, 1961
Section 14A(2)
AO merely on the basis of his general observations, viz. that investment decisions are very complex in nature and require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time, etc., dislodged the claim of assessee that no part of the expenses claimed by it in respect of its other non-exempt income could be attributed to earning of the exempt dividend income. There was no clear finding by him with reference to the assessee's accounts, as to how other expenditure claimed by assessee in respect of its non-exempt income was related to the exempt income. Therefore, invocation of rule 8D in contravention of mandate laid down under section 14A(2) could not be upheld.
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Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D(2) - Non-recording of dissatisfaction by AO at to correctness of assessee's claim
Assessee-company received exempt dividend income of Rs. 98,10,000, however did not offer any suo moto disallowance under section 14A. AO invoked rule 8D(2) and worked out disallowance. Assessee pleaded non-recording of dissatisfaction by AO in terms of section 14A(2). Held: AO merely on the basis of his general observations, viz. that investment decisions are very complex in nature and require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time, etc., dislodged the claim of assessee that no part of the expenses claimed by it in respect of its other non-exempt income could be attributed to earning of the exempt dividend income. The failure on part of AO to strictly comply with statutory obligation that was cast upon him, could safely be gathered from the fact that there was no clear finding by him with reference to the assessee's accounts, as to how other expenditure claimed by assessee in respect of its non-exempt income was related to the exempt income. Therefore, invocation of rule 8D in contravention of mandate laid down under section 14A(2) could not be upheld.
Relied:Godrej & Boyce Manufacturing Company Ltd. v. Dy. CIT & Anr. (2017) 394 ITR 449 (SC) : 2017 TaxPub(DT) 968 (SC) and Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC) : 2018 TaxPub(DT) 1403 (SC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. :
IN THE ITAT, MUMBAI BENCH
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