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2013 (6) TMI 761 - AT - Income TaxRecompute the disallowance u/s. 14A - Held that - We find that the direct expense in the form of Demat charges and STT on shares and also bank charges are debited in the capital account. The assessee has not claimed any of these direct expenses. A perusal of the capital account and the balance sheet exhibited at pages 14 & 15 of the Paper book show that the assessee has not claimed any expenses therefore, we do not find any reason for making any disallowance u/s. 14A r.w. Rule 8D of the Act. However, to meet the ends of justice, we direct the AO to restrict the disallowance to 5% of the exempt income.
Issues:
1. Disallowance under section 14A for exempt income without claimed expenditure. Analysis: The appeal before the Appellate Tribunal ITAT Mumbai involved a dispute regarding the disallowance under section 14A of the Income Tax Act for the assessment year 2008-09. The assessee contested the order of the Ld. CIT(A)-41, Mumbai, arguing that no expenditure was actually incurred for earning the exempt income of Rs. 2,46,054 disclosed. The Assessing Officer had disallowed Rs. 49,211 (20% of the exempt income) under section 14A after rejecting the assessee's explanation. The Ld. CIT(A) upheld this decision, stating that the AO could adopt a reasonable basis for apportionment. During the proceedings, the assessee clarified that no expenditure was actually made to earn the exempt income and that the 20% adhoc disallowance was excessive. The Departmental Representative, however, supported the AO's findings. Upon review, the Tribunal noted that the assessee had not claimed any direct expenses such as Demat charges, STT on shares, or bank charges, which were debited in the capital account. Consequently, the Tribunal found no basis for the disallowance under section 14A read with Rule 8D. However, in the interest of justice, the Tribunal directed the AO to limit the disallowance to 5% of the exempt income. In conclusion, the Tribunal partly allowed the appeal filed by the assessee, emphasizing that no actual expenditure was incurred for earning the exempt income, and therefore, a reduced disallowance of 5% was deemed appropriate to meet the ends of justice.
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