INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure incurred on exempted income - No exempted income earned by assessee -

Assessee-company had made investment for the purpose of earning dividend income which was exempt and incurred expenditure in relation to earning of exempted income. AO disallowed the expenses incurred under section 14A by invoking rule 8D of Income Tax Rules, 1962. Assessee contended that he had earned no exempt income in the relevant previous year. Held: This Court in Marg Limited v. CIT 2020 TaxPub(DT) 4041 (Mad-HC) had held that disallowance under rule 8D of the IT Rules read with section 14A can never exceed exempted income earned by assessee during the particular assessment year and further, without recording the satisfaction by AO that apportionment of such disallowable expenditure made by assessee with respect to exempted income was not acceptable for reasons to be assigned by the AO, he cannot resort to the computation method under rule 8D. Therefore, appeal was disposed of by remitting the matter back to AO for deciding the issue regarding disallowance under section 14A in accordance with the law.

Relied:Marg Limited v. CIT 2020 TaxPub(DT) 4041 (Mad-HC).

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2010-11

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