2018 (10) TMI 867 - HC - Income Tax

Disallowance u/s 14A - assessee had earned dividend income - Held that - Contention of the appellant-assessee that dividend income is not exempt income for the purpose of disallowance under Section 14A of the Income Tax Act, 1961 is a stale issue, which has already been answered in several cases We would clarify that the Assessing Officer while examining the question of disallowance under Section 14A would take into consideration all contentions and pleas of the appellant-assessee. Both the Assessing Officer and the appellant-assessee are bound by the ratio in Godrej and Boyce Manufacturing Company Ltd. (2017 (5) TMI 403 - SUPREME COURT OF INDIA) and Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT OF INDIA

Summary

Issues:
1. Whether dividend income is exempt for the purpose of disallowance under Section 14A of the Income Tax Act, 1961.
2. Whether branch office expenditure can be disallowed in relation to the Assessment Year 2004-05.

Analysis:
1. The appellant contended that dividend income is not "exempt" for disallowance under Section 14A. The court cited precedents like Godrej and Boyce Manufacturing Company Ltd. v. Deputy Commissioner of Income Tax and Maxopp Investment Ltd. v. Commissioner of Income Tax, rejecting this argument based on established case law. The issue was settled, and the contention was dismissed.

2. The appellant raised a grievance regarding the Tribunal's observations on disallowance, specifically mentioning branch office expenditure. The Tribunal's order clarified that only expenditure directly or indirectly related to earning exempt income from the head office should be considered for disallowance under Section 14A. The Tribunal directed a fresh calculation of disallowance, emphasizing that only head office expenditure should be taken into account, not branch office expenses.

3. It was noted during the hearing that no self-disallowance under Section 14A was made by the appellant, despite earning dividend income. The court disregarded previous disallowances made by the Assessing Officer and the Commissioner of Income Tax, as the Tribunal had set them aside and ordered a remand for fresh calculation.

4. The court emphasized that both the Assessing Officer and the appellant must adhere to the principles established in the referenced cases while determining disallowances under Section 14A. No substantial question of law was found in the appeal, leading to its dismissal without costs.