INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Exempted dividend income - Proximate relationship between expenditure incurred and dividend income earned -

Assessee had earned exempt dividend income. The suo motu disallowances proposed by assessee was not accepted by AO and he proposed the disallowance in proportion of exempted income to total income plus exempt income. AO arrived at the proportion of 1.68% which he applied over the interest expenses and administrative expenses and worked out disallowance towards interest expenses indirectly attributable to earning of exempt income and administrative expenses attributable to exempt income. Held: Tribunal in ACIT v. Vireet Investment Pvt. Ltd. [[ITA No. 502/Del/2012 (for Assessment Year 2008-09), Order date 16-6-2017] : 2017 TaxPub(DT) 1760 (Del-Trib)] , had restricted the disallowance towards administrative expenses under rule 8D(2)(iii) to 0.5% of assets which yielded exempt income during the year. Estimation of 0.5% of assets which yielded exempted income during the year would be a most reasonable estimate for identifying the administrative expenditure for earning the exempt income. Accordingly, AO was directed to compute the disallowance.

REFERRED : ACB India Limited (Formerly M/s Aryan Coal Benefications (P) LTD.) v. ACIT [ITA No. 615 of 2014, Order dated 24-3-2015] : 2015 TaxPub(DT) 1966 (Del-HC) ACIT v. Vireet Investment (P.) Ltd. [ITA No. 502/Del/2012 (for Assessment year 2008-09), Order date 16-6-2017] : 2017 TaxPub(DT) 1760 (Del-Trib)

FAVOUR : In assessee's favour by way of remand

A.Y. : 2007-08

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