INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Invocation of rule 8D - Assessee pleading to have made investment out of own funds and having incurred no expenditure towards earning of dividend income

Assessee earned tax free dividend income and claimed no suo moto disallowance under section 14A. AO invoked rule 8D and worked out disallowance. Assessee's case was that no expenditure had been incurred relating to earning of dividend claimed as exempt and dividend was automatically credited to bank account. Further, no interest bearing funds had been diverted for earning exempt income. Held: Huge investments were made which gave rise to exempted dividend income. Investment decisions are very complex and strategic and obviously they would have incurred administrative expenses such as salary, wages, general expenses, stationery, etc. Therefore, it could not be said that no expenditure was incurred for making investments. Hence, disallowance made by AO by invoking section 14A read with rule 8D(2)(iii) was confirmed and matter was remanded back to AO to verify assessee's contention that no part of interest bearing funds was diverted for making investments which had yield exempted income.

Relied:Muthoot Bankers v. Asstt. CIT ITA Nos. 12 to 17/Coch/2018, dated 3-10-2018 for the assessment year 2008-09 to 2013-14.

REFERRED :

FAVOUR : Partly in assessee's favour (by way of remand).

A.Y. : 2010-11 & 2011-12

INCOME TAX ACT, 1961

Section 36(1)(iii)

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