INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Disallonce of administrative expenses under rule 8D(2)(iii) quite disproportionate to exempt income earned by assessee -

Assessee earned tax free dividend income but claimed no disallowance under section 14A. AO invoked rule 8D and worked out disallowance of administrative expenses under rule 8D(2)(iii). Assessee challenged this on the ground of non-recording of satisfaction by AO in terms of section 14A(2). Held: AO had categorically stated that 'H' having regard to accounts of assessee-company, he was satisfied that claim of assessee in respect of expenditure in relation to income which did not form part of total income was not correct. Thus, it could not be said that AO had not recorded any satisfaction regarding assessee's claim as pleaded by assessee. However, exempt income earned was only Rs. 3,99, 270 and disallowance for administrative expenses incurred in this regard was Rs. 2,36,733. This at glance was not in accordance with principles of proportionality. Hence, issue was remanded to AO with direction to assessee to submit its details of direct and indirect expenses.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 143(3)

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