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TMI Blog2016 (4) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in its P&L account for earning tax free income no disallowance can be made. Secondly, the disallowance cannot exceed the exempt income. In the case under consideration the assessee had incrred an expenditure of ₹ 17, 503/-(DMAT charges) and that was the only item which could have been disallowed. The AO himself had mentioned that assessee in its computation of income had made the said disallowance. In these circumstances, we are of the opinion that order of the FAA was not justified. Reversing his order, we decide first Ground in favour of the assessee . Addition on notional interest - Held that:- We find that the AO had added a sum of ₹ 34, 038/- to the income of the assessee on notional basis. In our opinion, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallow - ance u/s. 14 A should not be made. It was submitted by the assessee that no disallowance could be made under rule 8D of the income tax rules, 1962 (Rules), that no interest-bearing funds were incurred by the assessee for making investments, that no other administrative expenses could be attributable to the earning of the dividend. However, the AO held that assessee had not advanced any concrete evidence to show that no expenses could be attributable to the earning of the dividend. Finally, he disallowed ₹ 2. 02 lakhs, invoking the provisions of section 14 A r. w. Rule 8D of the rules. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the first appellate authority (FAA). Before him, it was argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. We find that the assessee had earned dividend income of ₹ 1. 08 lacs, that it had made a disallowance of ₹ 17, 503/- on its own as per the provisions of Sec. 14A of the Act, that the AO had made a dsisallowance of ₹ 2. 02 lakhs, that the AO had not mentioned as to how much expenditure was incurred by the assessee for earning exempt income, that submission made by the assessee was not considered properly by the AO. We are of the opinion that disallowance u/s. 14A can be made, if an assessee claims an expenditure for earning exempt income. In other words, if no expenditure is claimed by the assessee in its P L account for earning tax free income no disallowance can be made. Secondly, the disallowance cannot exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not satisfied with the reply of the assessee and added ₹ 34, 038/- (difference between the lending rates) to the total income of the assessee. 7. During the appellate proceeding before the FAA, the assessee contended that there was no provision in the Act to add notional interest by an AO by comparing other internal/external rates of interest, that the AO could not assume the role of businessman, that he had failed to prove that notional income was received by the assessee or same had accrued to it. After considering the submission of the assessee and the assessment order, he held that assessee was charging 9% interest on loan advanced to other parties, that no documentary evidence was filed before him to show that assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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