2015 (10) TMI 1623 - AT - Income Tax

Disallowance under section 14A - contention of the assessee is that no expenditure was incurred in relation to exempt income and no material has been brought on record to show that any actual expenditure was incurred in relation to earning of exempt income - Held that - Held that - We find that in the instant case, the Revenue has not brought any positive material on record to show that the assessee actually incurred any expenses in relation to earning of exempt income. In our considered view, before making disallowance under section 14A, it was imperative on the part of the Revenue to bring some material on record to show that the assessee actually incurred any expenditure in relation to exempt income. In the absence of the same, in view of the decision of in the case of CIT Vs. Torrent Power Ltd., (2014 (6) TMI 185 - GUJARAT HIGH COURT ) the disallowance confirmed by the CIT(A) is not sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
Disallowance under section 14A of the Income Tax Act.

Detailed Analysis:

1. Background: The appeal was filed against the order of the CIT(A)-VIII, Ahmedabad, regarding the disallowance of Rs. 1,06,372 under section 14A of the Income Tax Act.

2. AO's Observations: The Assessing Officer (AO) noted that the assessee received dividend income of Rs. 3,10,10,076, which is exempt under section 10 of the Act. The AO disallowed a proportionate amount of expenditure incurred by the assessee for managing investments, leading to a disallowance of Rs. 5,01,024.

3. CIT(A)'s Decision: The CIT(A) upheld the disallowance but reduced it to Rs. 1,06,372. The CIT(A) referred to Rule 8D, stating that if the AO is not satisfied with the claim of expenditure made by the assessee, the amount of expenditure should be determined in accordance with the provisions of Rule 8D.

4. Assessee's Argument: The assessee argued that no expenditure was incurred for earning the exempt income and cited a decision of the Gujarat High Court to support the claim that disallowance cannot be made without evidence of actual expenditure.

5. Revenue's Argument: The Revenue argued that management and administrative costs were incurred due to fluctuations in the assessee's investments, and a significant portion of the income was exempt, justifying the disallowance.

6. ITAT's Decision: The ITAT noted that there was no evidence of actual expenditure incurred by the assessee for earning the exempt income. Citing the Gujarat High Court decision, the ITAT held that without proof of expenditure, the disallowance of Rs. 1,06,372 was not sustainable. Therefore, the disallowance was deleted, and the appeal of the assessee was allowed.

7. Conclusion: The ITAT ruled in favor of the assessee, deleting the disallowance under section 14A of the Income Tax Act. The judgment highlighted the necessity of concrete evidence of expenditure before making such disallowances.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive overview of the arguments presented and the final decision rendered by the ITAT.