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2015 (6) TMI 994 - AT - Income TaxDisallowance u.s 14A - permissible limit - Held that - In the instant case the income from dividend has been shown at 1, 11, 564 the disallowance under section 14 A read with Rule 8 D worked out by the Assessing officer comes to 4, 09, 675/-. Thus it is clear that the AO has disallowed the entire tax exempt income which is not permissible in view of the judgment of Joint Investment Pvt Ltd. Vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT . The Hon ble Delhi High Court held that the window for disallowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by he assessee in relation to the tax exempt income . The disallowance under section 14 A read with Rule 8 D as worked out by the AO is not in accordance with law and as such working is not sustainable. In view of the above observations think it is appropriate to set aside the order of the Ld. CIT(A) on this issue and remit the matter to the file of AO with a direction to decide the issue a fresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. - Decided partly in favour of assessee for Statistical purposes.
Issues:
1. Disallowance under section 14 A of the Income Tax Act, 1961 2. Capitalization of interest on fixed assets Issue 1: Disallowance under section 14 A of the Income Tax Act, 1961 The appellant contested the disallowance made under section 14 A of the Income Tax Act, amounting to Rs. 4,09,675, by the Assessing Officer. The disallowance was based on the grounds that the appellant had invested in shares and mutual funds, as well as in agricultural land, resulting in exempt income under section 10(1) of the Act. The AO disallowed the amount as the appellant had not shown any expenditure related to earning the exempt income. However, the appellant argued that no expenditure was incurred for earning the dividend income. The ITAT observed that the AO did not collect material evidence to determine the expenditure incurred by the appellant. The ITAT referred to a judgment by the Hon'ble Jurisdictional High Court, emphasizing the need for evidence of expenditure before disallowance under section 14 A. The ITAT found that the disallowance made by the AO was not in accordance with law and remitted the matter back to the AO for fresh consideration. Issue 2: Capitalization of interest on fixed assets The appellant also challenged the addition of Rs. 2,22,110 made by the AO by capitalizing the interest on fixed assets. The ITAT did not provide detailed findings on this issue, and the matter was not pressed by the appellant during the hearing. Consequently, grounds 3 to 5 of the appeal were dismissed as not pressed. In conclusion, the ITAT partly allowed the appeal for statistical purposes, setting aside the order of the Ld. CIT(A) on the disallowance under section 14 A and remitting the matter back to the AO for fresh consideration. The ITAT emphasized the requirement for evidence of expenditure before making disallowances under section 14 A, in line with legal precedents.
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