2014 (8) TMI 1090 - AT - Income Tax

Disallowance u/s 14A - administrative expenses which has been made after taking 0.5% of the average investment value, as envisaged in rule 8D - Held that - No effort was made or any time was consumed for making any analysis of the investment which has resulted into exempt income of ₹ 26,310, by way of dividend. The assessee has already disallowed the sum of ₹ 1,200 on account of demat charges which is sufficient and directly attributable to the exempt income. Under these facts and circumstances, we are of the opinion that simply relying on rule 8D, for the purpose of disallowance, cannot be held to be applicable, because the Assessing Officer having regard to the accounts of the assessee as well as the nature of expenses incurred which can be said to be attributable for the earning of exempt income, has not pointed out what are the expenses which could be said to be have been incurred or attributable on the administrative expenses. Only when the Assessing Officer is not satisfied with the correctness of the claim of the assessee, he can proceed to apply rule 8D. In this case, such a requirement has not been fulfilled by the Assessing Officer. Accordingly, we do not find any merit in the disallowance made by the Assessing Officer under rule 8D and accordingly, the disallowance made by the Assessing Officer under rule 8D and confirmed by the learned Commissioner (Appeals) stands deleted. - Decided in favour of assessee

Summary

Issues involved:
- Appeal challenging impugned order for assessment year 2009-10
- Condonation of delay in filing appeal
- Disallowance of Rs. 15,89,295 under section 14A for exempt income

Analysis:
1. The appeal was filed challenging the order passed by the Commissioner (Appeals) for the assessment year 2009-10 under section 143(3) of the Income Tax Act, 1961. The appeal was time-barred by two days, but the delay was condoned based on a petition supported by an affidavit of the director.

2. The main issue in the appeal was the disallowance of Rs. 15,89,295 under section 14A for exempt income. The Assessing Officer disallowed this amount based on rule 8D, considering the average value of investments. The assessee argued that no specific expenses were identified for earning tax-free dividend income and that only Rs. 1,200 was disallowed for demat charges, with other expenses being for business purposes. The Commissioner (Appeals) upheld the disallowance under rule 8D.

3. The assessee contended that no expenses were directly attributable to the exempt income of Rs. 26,310, as most investments were from previous years and no specific efforts were made for the current dividend income. The Tribunal found that the Assessing Officer did not identify expenses related to earning exempt income, and the disallowance under rule 8D was not justified. The Tribunal held that rule 8D cannot be applied without specific expenses being pinpointed, and the disallowance made by the Assessing Officer and confirmed by the Commissioner (Appeals) was deleted.

4. The Tribunal concluded that the disallowance under section 14A was not warranted as the Assessing Officer did not satisfy the requirement to apply rule 8D due to the lack of evidence of expenses attributable to exempt income. Therefore, the disallowance made under rule 8D was deleted, and the assessee's appeal was allowed.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by the parties, and the Tribunal's reasoning leading to the decision in favor of the assessee.