2013 (6) TMI 496 - AT - Income Tax

Disallowance u/s.14A r.w.Rule 8D - appellant submits that it has not incurred any expenditure to earn dividend income - Held that - According to the provisions of section 14A(2) the AO has to first satisfy himself regarding the correctness of the claim of the assessee having regard to the accounts of the assessee and such satisfaction of the AO is required to be objectively arrived at on the basis of those accounts and after considering all relevant facts and circumstances as supported by decision of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT(2010 (8) TMI 77 - BOMBAY HIGH COURT). The submissions made by assessee have not been considered by the AO and it has not been specifically recorded by him that the claim of the assessee that no expenditure has been incurred to earn dividend income is incorrect. Thus this issue be remitted to the file of AO with a direction to re- adjudicate the issue. In favour of assessee for statistical purposes.

Summary

Issues: Appeal against disallowance of expenses under section 14A of the Income Tax Act for assessment year 2008-09.

Analysis:
1. The appellant contested the disallowance of Rs.4,49,211 under section 14A of the Income Tax Act, claiming no expenditure was incurred to earn dividend income. The appellant further argued that the disallowance should be limited to the actual dividend received, which was Rs.2,001.

2. The appellant, engaged in share broking and investment activities, provided a detailed submission to the Assessing Officer (AO) asserting that no expenditure was made to earn the dividend income. Referring to the balance sheet, the appellant demonstrated that investments were made from its own funds. Citing legal precedents, the appellant argued against the disallowance under section 14A.

3. The AO and the Commissioner of Income Tax (Appeals) did not adequately consider the appellant's submissions. The appellant relied on the judgment in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, emphasizing the need for the AO to make a specific finding before disallowing expenses under section 14A. The AO failed to record such a finding despite the appellant's claim of no expenditure incurred for earning dividend income.

4. The Tribunal observed that the AO must objectively assess the correctness of the appellant's claim regarding expenditure, as per section 14A(2) of the Act. Citing the Godrej & Boyce Mfg. Co. Ltd. case, the Tribunal emphasized the need for a specific finding by the AO on the expenditure claim. As the AO did not address the appellant's submissions adequately, the Tribunal directed a re-adjudication of the issue in line with legal provisions and precedents.

5. The Tribunal allowed the appeal for statistical purposes, acknowledging the need for a proper assessment of the appellant's claim regarding expenses incurred to earn dividend income. The matter was remanded back to the AO for a fresh decision after considering all relevant facts and providing the appellant with a fair hearing opportunity.