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Issues involved: Challenge to the confirmation of disallowance u/s 14A of the Income-tax Act, 1961.
Summary: Issue 1: Disallowance u/s 14A of the Income-tax Act The assessee challenged the disallowance of &8377; 2,71,690 made u/s 14A of the Income-tax Act. The Assessing Officer (AO) applied Rule 8D and disallowed the amount based on the total investment made by the assessee. The AO concluded that the disallowance under sec. 14A encompasses not only indirect income but also indirect expenditure related to exempt income. The AO did not make any noting regarding the correctness of the account, and the assessee claimed no loan was taken nor any interest was paid. The AO disallowed the amount without considering these aspects. The Tribunal found that the principle of apportionment u/s 14A does not apply when no expenditure is claimed to have been incurred in relation to exempt income. The expenses incurred to earn exempt income cannot be allowed, and expenses should only be allowed to the extent they are related to earning taxable income. The AO must determine the amount disallowable as per Rule 8D if not satisfied with the correctness of the claim of the assessee regarding expenditure in relation to exempt income. The Tribunal, after considering the balance-sheet and profit & loss account of the assessee, found merit in the submission of the assessee and allowed the appeal. Decision: The appeal of the assessee was allowed. This order was pronounced in the Open Court in the presence of the learned representatives from both sides at the conclusion of the hearing on 11th December, 2012.
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