2015 (3) TMI 1111

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....at, the assessee is a company engaged in the business of construction, development of property and treasury operations. During the year, the assessee has earned dividend income of Rs. 64,21,691/- which was claimed as exempt. For the purpose of disallowance u/s.14A, the assessee had offered a sum of Rs. 2,40,000/-, in its computation of income. In response to the show cause notice, as to why the disallowance u/s.14A should not be made in accordance with the provisions of Rule 8D, the assessee submitted that, if the overall accounts and nature of expenditure is taken into consideration, then disallowance would work out to Rs. 18,349/- only and secondly Rule 8D would not be applicable on the facts of the case. The Assessing Officer held that t....

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....om this, there are no major expenses which have been debited, in the P & L account except for depreciation. On these facts, it cannot be held that such a huge expenditure is to be attributed for the purpose of disallowance, under clause (iii) of rule 8D, when assessee's core business is in real estate. To attribute the cost for the purpose of earning of exempt income, the assessee itself has disallowed the sum of Rs. 2,40,000/- calculate @ of Rs. 20,000/- per month which will cover not only the employees cost but also the administrative expenses. Further the Assessing Officer is required to examine the assessee's account and nature of expenses and only if he is not satisfied with the claim of the assessee in respect of such expenditure, the....

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.... and overall indirect expenses is taken into consideration, then it cannot be said that such a huge disallowance of Rs. 26,45,200/-is called for as worked out by the AO. Rule 8D is not a mechanical provision which is to be resorted, wherever there is disallowance u/s.14A(1). The same has been subjected to conditions enumerated in sub-section (2) of section 14A. The disallowance u/s.14A(1) is made, only if the expenditure has been incurred by the assessee in relation to the exempt income, that is, it is not forming part of the total income. If such an expenditure is incurred then sub-section(2)provides that the AO shall determine the amount of expenditure incurred in relation to earning of such exempt income. However such a determination can....