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2014 (7) TMI 596 - AT - Income TaxRestriction u/s 14A r.w. Rule 8D of the Rules Held that - The assessee has made fresh investments in two companies and he has received the dividend from a single company the decision in Maxopp Investment Ltd Vs. CIT 2011 (11) TMI 267 - Delhi High Court followed - the AO has not examined the claim made by the assessee in proper perspective - the judicial view that is consistently taken by various forum is that the AO can invoke the provisions of sec. 14A only if he, having regard to the accounts of the assessee, is not satisfied with the claim put forth by the assessee - the AO has not shown that he was not satisfied with the claim of the assessee by having regard to the accounts maintained by the assessee - the view taken by CIT(A) is a reasonable one and does not call for any interference Decided against Revenue.
Issues Involved:
1. Justification of disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. 2. Examination of the assessee's claim regarding expenses incurred in relation to exempt income. Detailed Analysis: Issue 1: Justification of Disallowance under Section 14A read with Rule 8D The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in restricting the disallowance made under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 to Rs. 5.00 lakhs. The Assessee-Company, engaged in financing, real estate development, real estate consultancy, and investing in shares/securities, received dividend income of Rs. 5.15 crores and claimed it as exempt. The Assessing Officer (AO) noticed that the assessee did not disallow any part of the expense as per Section 14A read with Rule 8D, under the plea that it did not incur any expense in earning the dividend income. The AO disallowed Rs. 27,17,05,461/- out of interest expenditure and Rs. 1,92,36,342/- out of administrative expenses. However, the AO later withdrew the disallowance of interest. Issue 2: Examination of the Assessee's Claim Regarding Expenses The assessee challenged the disallowance of administrative expenses by filing an appeal before the CIT(A), who noted that the investments were made only in subsidiary/group companies. The CIT(A) concluded that the activity of investment did not involve complex activities requiring huge expenses. Therefore, the CIT(A) estimated the expenses required to be disallowed under Section 14A to Rs. 5.00 lakhs and directed the AO to restrict the disallowance accordingly. The Revenue, aggrieved by this decision, filed the present appeal. The Revenue relied on the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd, arguing that the application of Section 14A is mandatory. Conversely, the assessee relied on the Tribunal's decision in the case of Raj Shipping Agencies Ltd, which held that the AO must first examine the accounts of the assessee and only if unsatisfied with the correctness of the claim, can invoke Rule 8D. Tribunal's Findings: The Tribunal examined the facts and noted that the AO did not properly examine the claim of the assessee, as evident from his observations. The AO did not show dissatisfaction with the claim of the assessee by examining the accounts. The Tribunal referred to the judicial view that the AO can invoke Section 14A only if he is not satisfied with the claim of the assessee, having regard to the accounts maintained by the assessee. The Tribunal agreed with the CIT(A)'s finding that the disallowance of Rs. 1,92,36,342/- was excessive and unjust, and the estimation of Rs. 5.00 lakhs was reasonable. Conclusion: The Tribunal upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue, concluding that the view taken by the CIT(A) was reasonable and did not call for any interference. The order was pronounced in the open court on 9th July, 2014.
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