The Tax Publishers2020 TaxPub(DT) 4750 (Bang-Trib)

INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A could not exceed tax-free income earned by assessee.

Disallowance under section 14A - Expenditure against exempt income - Disallowance in excess of tax free income earned by assessee -

Assessee earned tax free dividend income of Rs. 15,000 and claimed suo moto disallowance under section 14A amounting to Rs. 5 lakhs. AO invoked rule 8D and worked out additional disallowance of Rs. 10 lakhs. Held: Disallowance under section 14A could not exceed tax free income earned by assessee. As evident from copy of audited financial statement filed along with audit report in Form No. 3CB. Exempt income earned for the relevant assessment year was only a sum of Rs. 15,000, therefore, disallowance under section 14A was to be restricted to Rs. 15,000. However, since assessee has suo moto disallowed a sum of Rs. 3 lakhs under section 14A disallowance was restricted to Rs. 3 lakhs as per return of income filed by assessee.

Relied:Pr.CIT v. Caraf Builders & Constructions (P) Ltd. (2019) 112 Taxmann.com 322 (SC) : 2010 TaxPub(DT0 63 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14



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