TaxTMI 
TaxTMI 
2017 (1) TMI 1857
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.... Income Tax Act, 1961 (in short 'the Act'). 3. Brief facts relating to the case are that during the course of assessment proceedings the Assessing Officer noticed that the assessee company had made investments amounting to Rs.18,090/- lacs from which exempt income accrued. The assessee was asked to show cause as to why disallowance under section 14A should not be made. In response the assessee submitted that during the year it had earned dividend income of Rs.7,48,55,204/- and tax free interest income of Rs.2,47,69,624/- which was claimed exempt under the Act. The assessee further submitted that it had suo-moto allocated Rs.44,47,195/- out of total expenses of Rs.91,35,462/- on proportionate basis in the ratio of exempt income to taxable....
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.... 6. During the course of hearing, the Ld. DR contended that the facts in the present case were distinguishable from assessment year 2008-09 and, therefore, could not be covered by that decision. The Ld. DR pointed out that in assessment year 2008-09 the I.T.A.T. had found that no satisfaction had been recorded by the Assessing Officer on the issue as to how the disallowance computed by the assessee was incorrect. The Ld. DR pointed out that in the present case there was relevant satisfaction by the Assessing Officer, who at para 4.3 of his order had stated that in the absence of separate books of account maintained by the assessee he was not satisfied with the correctness of the expenses allocated. The Ld. DR further pointed out that while....
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....locate expenses of earning exempt income in a dis-proportionate manner attributing no expenses to earning taxable income at all. The relevant findings of the I.T.A.T. at para 7 of the order are as follows : "7. We have heard the rival contentions and perused the material available on record. We are in agreement with the findings of the learned CIT (Appeals), who has given very categorically the findings to the facts of the case that the Assessing Officer is not justified in disallowing whole of the expenses claimed by the assessee in its computation of income. The assessee has earned the taxable income amounting to Rs.2,17,56,363/- while non-taxable income earned by him is only Rs.2,96,383/-, which is a very small portion of the ta....
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....can be stretched to such an extent as has been done by the Assessing Officer in the present case. The intention of Legislature can never be to disallow the expenses claimed by the assessee for earning non-taxable income in such a disproportionate manner. The Income Tax Act Provides to allow expenses incurred by the assessee for earning taxable income also. However, in the present case, the Assessing Officer has created a situation where no expenditure was allowed to the assessee against the taxable income in the garb of computing disallowance to be made invoking provisions of section 14A as prescribed under Rule 8D. In this manner, the disallowance made by the Assessing Officer is totally bad in law. In view of the above, we find no infirmi....
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....t case also, we find that the Assessing Officer had not dislodged the correctness of the claim of the assessee of computing the expenses incurred on the tax free income on proportionate basis. The Assessing Officer has not pointed out as to how the same was incorrect, but has merely stated that since no separate books are maintained, the expenses incurred are not correct. There is no requirement under the law to maintain separate books for taxable and tax free income and, therefore, this cannot be the basis for questioning/disbelieving the correctness of the allocation made by the assessee. We, therefore, hold that the Ld. CIT (Appeals) has rightly applied the decision of the I.T.A.T. in the case of the assessee for assessment year 2008-09 ....