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2014 (1) TMI 1183 - AT - Income TaxDisallowance u/s 14A of the Act r.w Rule 8D of the rules Dividend income Held that - The entire expenditure debited by assessee in its profits and loss account could not be said to have been incurred only for earning exempt income under the Act - A reasonable allocation of expenditure has to be made which can be attributed to the income which is chargeable to tax particularly bank interest income as against dividend income the expenditure as worked out by assessee, the details of which are mentioned by AO is reasonable to make disallowance u/s 14A with Rule 8D - the disallowance restricted to Rs.7,21,927 Decided in favour of Assessee.
Issues: Disallowance under section 14A of the Income Tax Act, 1961 for the assessment year 2008-09.
Analysis: 1. The assessee, a Non-Banking Finance Company, appealed against the disallowance made under section 14A of the Income Tax Act, 1961 by the Assessing Officer (AO) amounting to Rs.13,73,731/-, which was confirmed by the ld. CIT(A). 2. The AO applied Rule 8D of the Income Tax Rules, 1962 to calculate the disallowance, resulting in a higher amount of Rs.1,56,03,383/-. The dispute arose as the assessee had debited Rs.13,73,731/- in its profit and loss account, out of which it voluntarily disallowed Rs.7,21,927/- under section 14A. 3. The First Appellate Authority upheld the AO's decision, stating that the entire expenditure could be considered as incurred for earning exempt income under the Act, despite acknowledging that some expenses might relate to other income sources like bank interest. 4. The Appellate Tribunal considered the nature of expenses and income shown by the assessee, concluding that a reasonable allocation of expenditure should be made. They found the disallowance of Rs.7,21,927/- as calculated by the assessee to be reasonable, given the proportion of bank interest income to dividend income. 5. Consequently, the Appellate Tribunal reversed the decisions of the lower authorities and restricted the disallowance under section 14A to Rs.7,21,927/-, allowing the grounds of appeal raised by the assessee. 6. The appeal of the assessee was allowed by the Appellate Tribunal, and the order was pronounced on January 22, 2014.
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