2008 (4) TMI 730 - AT - Income Tax

Summary

Issues involved: Appeal against disallowance of expenses on estimate basis u/s 14A of the Income Tax Act, 1961 for assessment year 2004-05.

The appellant, a finance company, returned a loss under normal provisions of the Income Tax Act and income u/s 115JB of the Act. The appellant claimed exemption for dividend income but did not add back the expenditure u/s 14A. The Assessing Officer disallowed &8377; 50,000 as expenses. The CIT(A) upheld the disallowance as appropriate and reasonable.

The appellant contended that sec.14A did not allow for estimation of expenses, while the Departmental Representative relied on previous orders. The Tribunal referred to a previous case and held that the Assessing Officer cannot allocate expenses without specific findings, especially before 1-4-2007 when relevant subsections were inserted in sec. 14A. As no specific expenses were identified for earning dividend income, the disallowance was deleted following precedent.

Therefore, the appeal of the assessee was allowed, and the disallowance of expenses was deleted.