INCOME TAX ACT 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Applicability of rule -

Assessee declared dividend income and claimed the same as exempt in the return of income. It claimed that no expenditure was also relatable to exempt income. AO however, did not agree to these contentions of assessee and proceeded to make disallowance under second and third limbs of rule 8D(2). Held: As far as the disallowance of indirect expenses under third limb of rule 8D(2) of the Rules, then only those investments which had actually yielded exempt income need to be considered for working out the disallowance thereon. This has been so held by ITAT, Delhi in its decision rendered in the case of Vireet Investments [(2017) 165 ITD 27 (Del) : 2017 TaxPub(DT) 1760 (Del-Trib)]. However, if adoption of such computation mechanism results in absurdity, then the proportionate income theory is to be adopted for working out the disallowance as rule 8D computation mechanism should be considered as the last resort, and is not automatic in its application.

Followed:Vireet Investments [(2017) 165 ITD 27 (Del) : 2017 TaxPub(DT) 1760 (Del-Trib)].

REFERRED :

FAVOUR : In favour of assessee

A.Y. : 2011-12

INCOME TAX ACT 1961

Section 37(1)

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