2014 (9) TMI 1111 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Held that - The computation of income reveals that the assessee had disclosed the income from business or profession at Rs. 1, 16, 12, 455/- against which the expenditure of only Rs. 11, 73, 198/- had been claimed. It cannot be under any circumstances said that the assessee did not incur any expenditure for earning of taxable income in crores. Since the assessee had a net positive interest income under such circumstances it cannot be said that the assessee had incurred interest expenditure for earning of exempt income. So far the remaining amount on account of administrative expenses is concerned it is too meager as compared to the taxable income of the assessee. However keeping in view the fact that the assessee had earned dividend income it might have incurred some expenses for the said purpose we restrict the disallowance under section 14A to 10% of the total administrative expenses of Rs. 7, 31, 006/-. - Decided partly in favour of assessee.

Summary

Issues involved:
1. Disallowance of expenses under section 14A read with rule 8D of the Income Tax Rules.

Detailed Analysis:
The judgment by the Appellate Tribunal ITAT Mumbai involved the appeal filed by the assessee challenging the disallowance of Rs. 10,51,475 made under section 14A read with rule 8D of the Income Tax Rules. The Assessing Officer (AO) noted that the assessee had received dividend income claimed as exempt under section 10(34) of the Income Tax Act and had not attributed any expenses to earn the exempt income. The AO computed the disallowance at Rs. 22,29,762 under rule 8D, but restricted it to Rs. 11,73,198 being expenses debited to the profit and loss account.

In the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], it was argued that the assessee earned income from professional fees and incurred expenses for the same. The CIT(A) observed that since the assessee earned dividend income, there might have been expenses related to it. The matter was remanded back to the AO to verify the total disallowance of expenditure. The assessee appealed against this order.

During the proceedings, the assessee argued that the interest income exceeded the interest expenditure claimed, resulting in a net positive interest income. The total income was Rs. 1,16,12,455 against claimed expenditure of Rs. 11,73,198, which included interest expenditure and administrative expenses. The assessee contended that the disallowance of the entire expenditure under section 14A was not justified.

After considering the submissions, the Tribunal noted that the assessee disclosed income of Rs. 1,16,12,455 against claimed expenditure of Rs. 11,73,198. It was observed that the assessee had a net positive interest income, indicating no interest expenditure for earning exempt income. The Tribunal restricted the disallowance under section 14A to 10% of the total administrative expenses of Rs. 7,31,006, considering the overall facts and circumstances, and the possibility of expenses incurred for earning dividend income.

The Tribunal partially allowed the appeal of the assessee, emphasizing that the findings were specific to the case and should not be considered a precedent for subsequent years.