INCOME TAX ACT, 1961

Section 14A Rule 81

Disallowance under section 14A - Expenditure incurred against earning of exempted income - CIT(A) modified disallowance of expenditure in relation to exempt income under section 14A -

Assessee received dividend income and claimed the same as exempt under section 10(34) however not made any suo moto disallowance towards expenditure in relation to exempt income under section 14A. Therefore, AO asked assessee to explain as to why expenses in relation to exempt income shall not be computed under section 14A read with rule 8D of the IT Rules, 1962. Assessee submitted that he has not incurred any expenditure for earning dividend income. The expenditure claimed against professional income was related to his professional activity and no part of expenditure is attributable to earning of exempt income. AO, however, was not convinced with the explanation of the assessee and according to him as per section 14A, no deduction should be allowed in respect of expenditure incurred in relation to income which did not form part of total income. Held: AO recorded satisfaction as required under section 14A(2) and applied rule 8D(2) of Rules to compute disallowance. Disallowance computed by AO and modified by CIT(A) on the basis of revised computation filed by the assessee during appellate proceedings. CIT(A) had considered revised computation filed by assessee and had directed AO to exclude investments which did not yield exempt income for the purpose of computation of average value of investments and delete excess disallowance made under rule 8D(2)(iii) of the Rules. Therefore, there was no error in the findings recorded by CIT(A) to confirm / modify disallowance of expenditure in relation to exempt income under section 14A read with rule 8D(2)(ii) of the Rules.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2013-14 & 2014-15

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