INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Invoation of rule 8D - Non-recording of dissatisfaction by AO as to correctness of assessee's claim under section 14A

Assessee earned tax free dividend income but claimed no disallowance under section 14A. AO invoked rule 8D and worked out disallowance. Assessee contended that AO without recording his dissatisfaction as regards the claim of assessee that no expenditure was incurred for earning of exempt dividend income, had in a mechanical manner dislodged the same and worked out the disallowance under section 14A read with rule 8D. 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., had dislodged the claim of assessee that no part of the expenses claimed by him in respect of his other non-exempt income could be attributed or related to earning of the exempt dividend income. The failure on the 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 assessee's accounts as to how the other expenditure claimed by the assessee in respect of its non-exempt income were related to its exempt income. Therefore, in view of contravention of mandate laid down under section 14A(2), invocation of rule 8D by AO was not justified and, therefore, disallowance was deleted.

Relied:Godrej & Boyce Manufacturing Co. Ltd. v. Dy. CIT & Anr. (2017) 394 ITR 449 (SC) : 2017 TaxPub(DT) 0968 (SC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

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