Sec 14A disallowance cannot exceed the exempt income earned

Sec 14A disallowance cannot exceed the exempt income earned

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows : 8. Other limb of assessee's contention is that assessing officer has not given the finding on the satisfaction that assessee has incurred expenditure for earning the exempt income. In this regard we note that assessing officer has stated that assessee has made suo moto disallowance of 15 lakhs. However despite request the assessee did not produce the basis for arriving at this amount. Thereafter the assessing officer has duly rejected the assessee’s contentions and applied Rule 8D(3) and made the disallowance which has been sustained by learned CIT(appeals). However we are of the considered opinion that the issue may be considered by the assessing officer once more by taking into account the following which are also the contentions of the assessee in earlier year.

(i) The disallowance under 14A cannot exceed the actual expenditure incurred in this regard.

(ii) The disallowance has to be considered only with respect to the investments which have yielded exempt income.

(iii) The disallowance cannot exceed the exempt income earned.

9. Accordingly, with these observation we remit the issue to the file of the Assessing Officer to reconsider the disallowance under Rule 8D(iii) afresh. Needless, the assessee should be provided adequate opportunity of being heard.