The Tax Publishers2020 TaxPub(DT) 3552 (Del-Trib)

INCOME TAX ACT, 1961

Section 14A Rule 8D

Rule 8D being prospective in nature, could not have been made applicable in the year under consideration i.e., assessment year 2007-08. However, during the year assessee traded in mutual funds and not explained source of investment in those mutual funds. Accordingly, certain interest expenditure towards investment in mutual fund clearly was to be disallowed, however, disallowance under section 14A could not exceed exempted income.

Disallowance under section 14A - Expenditure against exempt income - Applicability of rule 8D -

Assessee earned tax free dividend income and made suo moto disallowance under section 14A against the said exempt income. AO invoked rule 8D and worked out additional disallowance. Held: Rule 8D being prospective in nature, could not have been made applicable in the year under consideration i.e., assessment year 2007-08. However, during the year assessee traded in mutual funds and not explained source of investment in those mutual funds. Accordingly, certain interest expenditure towards investment in mutual fund clearly was to be disallowed, which assessee had not considered in its suo motu disallowance. At the same time, disallowance under section 14A could not exceed exempted income.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2007-08 & 2009-10

INCOME TAX ACT, 1961

Section 2(22)(e)

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