INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Assessee made suo moto disallowance - AO made disallowance over and above suo moto disallowance made by assessee

Assessee-company made suo moto disallowance under section 14A. However, AO made disallowance of expenditure determined in accordance with rule 8D(2) over and above the suo moto disallowance made by the assessee. Assessee contended that as AO did not point out in clear terms as to why the suo moto disallowance made by it was not correct, therefore, the disallowance made by the AO over and above the suo moto disallowance would not be sustainable. Held: AO did not point out in clear terms as to why the suo moto disallowance made by assessee was not correct with reference to its books of account. He all along stated in the assessment order that only partial application of rule 8D was made by the assessee and did not point out the incorrectness of the suo moto disallowance made by the assessee or as to why the same was not adequate disallowance under section 14A to meet the expenses attributable for earning dividend income. Hence, the AO was directed to restrict the disallowance under section 14A only to the suo moto disallowance already made by the assessee and delete the balance disallowance.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2009-10

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