INCOME TAX ACT, 1961

Section 14A Read with Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Disallowance exceeding exempt income -

Assessee made suo-moto disallowance under section 14A. However, the AO found that the disallowance made by the assessee was not as per the provisions of rule 8D. Accordingly, he rejected the working for the disallowance made by the assessee and made the disallowance of expenses against exempt income as per the provisions of rule 8D. Held: Section 14A(1) provides that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act. Further, disallowance under section 14A read with rule 8D cannot exceed the exempt income. As such, the amount of disallowance under section 14A read with rule 8D could not exceed the amount of disallowance made by the assessee in the income tax return. Hence, the disallowance made by AO under section 14A read with rule 8D would not be sustainable.

Relied:CIT v. Corrtech Energy Pvt. Ltd. (2014) 45 taxmann.com 116 (Guj) : 2014 TaxPub(DT) 2072 (Guj-HC) Pr.CIT v. State Bank of Patiala (2018) 99 taxmann.com 286 (SC) : 2019 TaxPub(DT) 0976 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2013-14

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