No disallowance u/s 14A on dividend income: ITAT

No disallowance u/s 14A on dividend income: ITAT

The issue in this appeal of the assessee is regard to the disallowance u/s 14A of the Income Tax Act, 1961 (The Act).

In this case, assessee during the year earned dividend income of Rs.9,30,964, which was claimed as exempted u/s 10 of the Act. During the assessment proceedings, assessing officer held that it is difficult to accept that an assessee can earn dividend income without incurring any expenses whatsoever including management or administrative expenses as investment decisions are generally taken in a planned manner. Accordingly, the Assessing Officer made the disallowance of Rs. 11,15,003 under section 14A read with Rule 8D of the Rules.

The ld CIT(A) restricted the disallowance made under section 14A of the Act to the quantum of tax–exempt income earned or accrued during the financial year under consideration.

Accordingly, the Assessing Officer was directed to restrict the disallowance under section 14A of the Act to Rs. 9,30,964. Being aggrieved, the assessee is in appeal before the tribunal.

Before tribunal assessee submitted that he had not incurred expenditure for earning the exempt income and thus no disallowance can be made under section 14A of the Act. ITAT was of the view that if the Assessing Officer was not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does in form part of the total income, the Assessing Officer can determine the amount of such expenditure after having regard to the accounts of the assessee.

In the present case, it was evident from notes forming part of the financial statement that the assessee incurred expenditure of Rs. 53,677 for earning total income of Rs. 2,32,24,633 which was 0.23% only. Further, the Revenue had not specified, which head of expenditure was considered for making disallowance under section 14A of the Act. Thus, in view of the above, having regard to the accounts of the assessee, ITAT did not find any basis for upholding the disallowance made u/s 14A of the Act.

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