2014 (1) TMI 1229 - AT - Income Tax

Disallowance made u/s 14A of the Act r.w. Rule 8D of the Rules - Disallowance of expenses incurred in relation to the exempt income Income received as dividend on shares Held that - After going by the magnitude of the investment activity of the assessee and the quantum of exempt income earned, certain common expenses incurred on office and administration incurred by the assessee should be attributable partly to the investment activity of the assessee which resulted in substantial exempt income - Relying upon Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT - The manner and method of computing such in-direct expenses attributable to the earning of exempt income is now provided in Rule 8-D and the same being applicable to the year under consideration i.e 2008-09 - thus, the disallowance made by the A.O. u/s 14A of the Act by applying the said Rule was fully justified the order of the CIT(A) confirming the disallowance made by the A.O. u/s 14A read with Rule 8-D of the Income tax Rules 1962 upheld Decided against Assessee.

Summary

Issues:
Disallowance of expenses related to exempt income under section 14A read with Rule 8-D of the Income Tax Rules, 1962.

Analysis:
The judgment involves a dispute regarding the disallowance of expenses related to exempt income under section 14A read with Rule 8-D of the Income Tax Rules, 1962. The appellant, a senior advocate, declared a total income of Rs. 17,91,15,983/- with exempt income of Rs. 7,15,62,506/-. The Assessing Officer (A.O.) disallowed Rs. 2,36,939/- as expenses related to exempt income, which was confirmed by the ld. CIT(A). The appellant contended that all expenses claimed were related to professional income, not exempt income. However, the A.O. believed certain expenses were partly attributable to the exempt income due to lack of activity-wise bifurcation. The ld. CIT(A) upheld the disallowance based on the appellant's dividend income, change in investments, and debited expenses related to exempt income.

The Tribunal considered the substantial exempt income earned by the appellant and agreed that common expenses incurred by the appellant were partly attributable to the investment activity resulting in exempt income. The Tribunal noted the provisions of Rule 8-D for computing indirect expenses related to earning exempt income, applicable for the year under consideration. Consequently, the disallowance made by the A.O. under section 14A using Rule 8-D was deemed justified. The Tribunal upheld the ld. CIT(A)'s decision to confirm the disallowance, dismissing the appellant's appeal.

In conclusion, the Tribunal dismissed the appeal, affirming the disallowance of expenses related to exempt income under section 14A read with Rule 8-D of the Income Tax Rules, 1962. The judgment underscores the importance of correctly attributing expenses to exempt income and the applicability of Rule 8-D for such computations, ensuring compliance with tax regulations and justifying the disallowance in this case.