2017 (11) TMI 1627 - AT - Income Tax

Addition u/s 14A r.w.s. 8D(iii) on an exempt dividend income - Held that - As the disallowance made by AO has resulted in absurd situation of disallowing genuine other business expenditure, on which assessee earned more than ₹ 19 Lakhs income (as against ₹ 8,100/- of dividend), we are satisfied that the disallowance u/s. 14A should be restricted to the income earned of ₹ 8,100/-. AO is directed accordingly.

Summary

Issues:
Confirmation of amount u/s. 14A r.w.s. 8D(iii) on exempt dividend income.

Analysis:

Issue 1: Verification of Name Change
The appeal was filed under a different name than the one assessed. The Tribunal noted discrepancies in the name changes and emphasized the importance of verifying such changes before entertaining an appeal to ensure accuracy and compliance with procedural requirements.

Issue 2: Delay in Filing Appeal
The appeal was filed with a delay of 12 days, attributed to the Manager being out of station. The Tribunal considered the explanation provided, condoned the delay, and admitted the appeal.

Issue 3: Disallowance under Rule 8D(iii)
The Assessing Officer invoked Rule 8D(iii) for disallowance based on an exempt dividend income of &8377; 8,100. The CIT(A) upheld the disallowance, emphasizing the need for a nexus between expenditures and income earned. The Tribunal analyzed the nature of expenditures and found that the disallowance should not exceed the income claimed exempt, following the principles established in previous judgments.

Issue 4: Calculation of Disallowance
The Tribunal reviewed the expenditures incurred by the assessee and concluded that the disallowance under Rule 8D(iii) should be restricted to the income earned from the exempt dividend, which was &8377; 8,100. The Tribunal highlighted the need to avoid absurd disallowances and ensure a reasonable correlation between disallowances and exempt income.

Conclusion
The Tribunal partially allowed the appeal, directing the Assessing Officer to restrict the disallowance u/s. 14A to the income earned from the exempt dividend. The judgment emphasized the importance of a balanced approach in disallowing expenditures related to exempt income to prevent unjust outcomes and ensure fairness in tax assessments.