2012 (4) TMI 769 - AT - Income Tax

Summary

Issues involved:
The only issue raised in the appeal is the disallowance u/s 14A of the IT Act read with Rule 8D of IT Rules.

Details of the Judgment:

Issue 1: Disallowance u/s 14A of the IT Act read with Rule 8D of IT Rules
The assessee had derived dividend income claimed as exemption u/s 10(38) of IT Act. The Assessing Officer (AO) disallowed an amount under u/s 14A against the dividend income. The disallowance was computed at 0.5% of the average value of investments. The CIT(A) confirmed this disallowance. The assessee contended that there were no borrowings for investments and that expenses debited to the Profit and Loss account were not related to investment activities. The assessee relied on a previous ITAT judgment where a similar disallowance was deleted. The assessee argued that no disallowance should be made under Rule 8D as there was no link between the expenditures and investments. The AO and CIT(A) did not provide any finding against the assessee's claim. The assessee requested to restrict the disallowance to the amount proposed by them. The assessee submitted relevant documents to support their contentions. After considering the submissions and perusing the records, it was observed that investments were made from the assessee's own funds. The Tribunal found no justification for the revenue's estimation of disallowance at 0.5% of investments. The orders of the revenue authorities were set aside, and the AO was directed to accept the disallowance made by the assessee.

Decision:
The appeal of the assessee was allowed, and the disallowance amounting to the dividend income was accepted.

Note:
Separate judgments were not delivered by the judges in this case.