Appeal partially allowed, disallowance under section 14A reduced to Rs. 25,000.

The appeal was partly allowed, and the disallowance under section 14A of the Income Tax Act was reduced to Rs. 25,000 by the Tribunal on 2nd July 2015.

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Issues:
Challenge to disallowance under section 14A of the Income Tax Act, 1961 for assessment year 2005-06.

Detailed Analysis:

Issue 1: Disallowance under section 14A of the Act
- The appellant challenged the disallowance of Rs. 50,000 made by the AO under section 14A of the Income Tax Act, 1961.
- The AO disallowed the amount as the assessee earned dividend income of Rs. 15.29 lakhs claimed to be exempt from taxation without making any disallowance for expenses incurred.
- The Tribunal had earlier directed the AO to make a reasonable disallowance based on the decision in the case of Godrej & Boyce Mfg Co. Ltd.
- The AO, in the set-aside proceedings, noted a 5% disallowance of exempt income in another case but maintained the original disallowance of Rs. 50,000.
- The appellant argued that most of the dividend income was from mutual funds directly credited to the bank account, thus incurring no expenses for earning the income.
- The Tribunal observed the significant number of transactions and expenses incurred by the assessee, leading to a decision that a reasonable disallowance was necessary under section 14A.
- The Tribunal found the original disallowance of Rs. 50,000 to be on the higher side and directed the AO to restrict the disallowance to Rs. 25,000.

Conclusion:
The appeal was partly allowed, and the disallowance under section 14A was reduced to Rs. 25,000, as directed by the Tribunal on 2nd July 2015.

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