2012 (6) TMI 406 - AT - Income Tax

Factual errors in computing Disallowance u/s 14A r.w.r. 8D - Held that - From the perusal of the assessee s profit & loss account, it is evident that the total expenditure incurred was Rs. 49,04,028/- only and the disallowance cannot exceed the expenditure actually claimed by the assessee - in favour of assessee.

Summary

Issues: Disallowance under Section 14A read with Rule 8D for AY 2008-09

Analysis:

1. Issue: Disallowance under Section 14A read with Rule 8D
- Details: The appeal was filed against the order of the learned CIT(A)-VIII for the AY 2008-09. The grounds raised by the assessee challenged the disallowance made by the Assessing Officer under Section 14A read with Rule 8D. The assessee argued that the disallowance should not exceed the expenditure claimed in the profit & loss account, which was Rs. 49,04,028. The assessee contended that even if the entire expenditure was presumed to be for earning dividend income, the disallowance cannot exceed the claimed expenditure. The Assessing Officer had disallowed Rs. 2,37,59,757, which the assessee argued was unjustified.

2. Analysis:
- The Assessing Officer relied on the orders of the authorities below, while the assessee's counsel highlighted various factual errors in computing the disallowance under Rule 8D. The counsel argued that Rule 8D is a method for determining expenditure incurred for earning exempt income, and any disallowance should not exceed the actual expenditure claimed by the assessee. Section 14A prohibits deduction for expenditure related to income not included in the total income. The Tribunal noted that the total expenditure claimed by the assessee was Rs. 49,04,028, and thus restricted the disallowance to this amount, as the disallowance cannot exceed the expenditure actually claimed by the assessee. Therefore, the Tribunal partly allowed the appeal of the assessee, limiting the disallowance to Rs. 49,04,028.

3. Conclusion:
- The Tribunal's decision clarified that the disallowance under Section 14A read with Rule 8D should not exceed the actual expenditure claimed by the assessee. By restricting the disallowance to the amount claimed in the profit & loss account, the Tribunal addressed the unjustified disallowance made by the Assessing Officer. This judgment provides guidance on the correct application of Section 14A and Rule 8D in determining expenditure for earning exempt income, ensuring that disallowances are proportionate to the claimed expenses.