TaxTMI 
TaxTMI 
2010 (10) TMI 126
X X X X Extracts X X X X
X X X X Extracts X X X X
....s applicable from assessment year 2007-08 onward and not applicable in assessment year 2006-07 under appeal, as such the Ld. Commissioner of Income Tax (Appeals) has erred in directing the Assessing Officer to re-work the amount of disallowance under section 14A of the Act read with Rule 8-D of the Income Tax Rules. 3. In this case the Assessing Officer observed that assessee has earned exempt income in the form of dividend of Rs. 70,33,453/- u/s 10(33) of the IT Act. Assessing Officer referred to the provision of section 14A which reads as follows:- "14A. Expenditure incurred in relation to income not includible in total income. - For the purpose of computing the total income under this chapter, no deduction shall be allowed in respe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the IT Act, 1961. Therefore, he estimated the expenses u/s 14A on a prorate basis (dividend income is 13.22% of total income so expenses are disallowed in same ratio) [Addition of Rs. 36,45,413/-] 4. Before the Ld. Commissioner of Income Tax (Appeals) the assessee inter-alia filed a working paper, as per rule 8D according to which total disallowance worked out Rs. 2323449/-. Ld. Commissioner of Income Tax (Appeals) held the working disallowance of Rs. 23123449/- as given by the assessee is in its submission are erroneous, hence, cannot be relied upon. Ld. Commissioner of Income Tax (Appeals) preferred to rely upon the decision of the Special Bench of the Tribunal in the case of ITO vs. Daga Capital Management P. Ltd. 26 SOT 603 and hen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeal, that the expenditure on interest was set off against the income from interest and the investment in the shares and funds were out of the dividend proceeds. In viewof this finding of fact, disallowance under section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, was a question of fact. The contention of the Revenue that directly or indirectly some expenditure was always incurred which must be disallowed under section 14A and the impact of expenditure so incurred could not be allowed to be set off against the business income which may nullify the mandate of section 14A, could not be accepted. Disallowance u/s 14A required finding of incurring of expenditure and where i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record. 6.3 We have considered the submissions carefully. We find that in the case of Hero Cycles Ltd., the Hon'ble Punjab and Haryana High Court has held that disallowance u/s 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand. On the other hand, the Hon'ble Mumbai High Court decision in the aforesaid case of Godrej Boyce Mfg. Co.....