2019 (6) TMI 236

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..... its applicability is not automatic. It is hedged by conditions prescribed therein. Section 14A inheres in it the concept of reasonableness. The formidable amount of expenditure as computed by the AO cannot be said to be attributable to tax free income generated from separately administered mutual funds by applying a straight jacket formula embodied in Rule 8D(2)(iii) of the IT Rules. Thus, we find considerable merit in the plea of the assessee for no additional disallowance over and above suo motu disallowance made by the assessee itself in this regard. Hence, we are disposed to adjudicate the issue in favour of the assessee. Thus, the order of the CIT(A) sustaining the disallowance u/s 14A deserves to be vacated. - Decided in favour of .....

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..... 4. When the matter was called for hearing, the learned AR for the assessee pointed out that the assessee is in receipt of dividend income from certain mutual funds aggregating to ₹ 9,90,090/-. The assessee has considered the above dividend income as exempt income. An amount of ₹ 10,000/- was however suo motto disallowed as expenses attributable to exempt income. The assessee contended that the exempt income is generated from investment in mutual funds and therefore no administrative expenses have been incurred separately by the assessee and therefore there was no warrant to apply statutory formula specified in Rule 8D(2)(iii) for the purposes of disallowance of administrative expenditure. The learned AR contended .....

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..... e appears to be in congruity with market practice. Accordingly, we do not find it a fit case for resorting to double disallowance of similar expenditure taking shelter of Rule 8D(2)(iii) of the IT Rules. It will be pertinent here to note that a bare reading of Section 14A of the Act suggests that its applicability is not automatic. It is hedged by conditions prescribed therein. Section 14A inheres in it the concept of reasonableness. The formidable amount of expenditure as computed by the AO cannot be said to be attributable to tax free income generated from separately administered mutual funds by applying a straight jacket formula embodied in Rule 8D(2)(iii) of the IT Rules. Thus, we find considerable merit in the plea of the assessee for .....

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