The Tax Publishers2020 TaxPub(DT) 4966 (Mum-Trib)

INCOME TAX ACT, 1961

Section 14A

Where assessee had sufficient interest-free funds available with it which can take care of investment made in exempt income yielding assets, no disallowance of interest expenditure under rule 8D(2)(ii) can be made, further, as disallowance of administrative expenditure under rule 8D(2)(iii) was concerned, it was the contention of assessee that for availing loan from a co-operative bank, assessee had to mandatorily invest in shares of the bank and assessee was not able to establish on record that no expenditure is attributable towards earning of exempt income, thus, matter was remanded back to AO for fresh adjudication keeping in view the observations made in the order.

Disallowance under section 14A - Expenditure incurred against earning of exempt income - Disallowance of interest expenditure under rule 8D(2)(ii). -

During the assessment proceedings, AO noticed that assessee had earned exempt income by way of dividend, however, it had not made any disallowance under section 14A. After calling upon assessee to explain as to why disallowance under 14A should not be computed by applying rule 8D, AO proceeded to disallow an amount comprising of disallowance of interest expenditure under rule 8D(2)(ii) and administrative expenditure under rule 8D(2)(iii). Held: Assessee had sufficient interest free funds available with it which can take care of investment made in exempt income yielding assets, no disallowance of interest expenditure under rule 8D(2)(ii) can be made. AO was directed to factually verify assessee's claim in this regard. In so far as disallowance of administrative expenditure under rule 8D(2)(iii) was concerned, it was the contention of assessee that for availing loan from a co-operative bank, assessee had to mandatorily invest in shares of the bank. In any case, as per section 14A(3), whether or not assessee had incurred any expenditure for earning exempt income, a part of the expenditure has to be attributed towards earning of exempt income. Assessee was not able to establish on record that no expenditure is attributable towards earning of exempt income. However, such disallowance has to be computed by taking into consideration only those investments which have yielded exempt income during the year. Thus, matter was remanded back to AO for fresh adjudication keeping in view the observations made in the order.

REFERRED :

FAVOUR : In assessee's favour by way of remand.

A.Y. : 2012-13



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