Brief Facts of the Case
The AO observed that during the year the assessee has received dividend income of Rs.3,10,10,076/-, which is exempt under section 10 of the Act. The AO observed that the assessee is in receipt of considerable amount of exempt income, and no separate accounts have been maintained with regard to the earning of exempt income. The AO observed that the management and maintenance of such investments always entail certain administrative expenditure, such as, telephone expenditure etc. Therefore, he disallowed the proportionate amount of expenditure incurred out of the total expenditure incurred by the assessee during the year amounting to Rs.1,06,372/-.
Question of Fact
Whether disallowance of expenditure can be made on the basis of estimation or assumption, where there is nothing on record to indicate that there has been in fact any actual expenditure incurred by the assessee for earning tax free income?
Contention of the Assesse
The assessee argued that the assessee-company earned dividend income of Rs.3,10,10,076/-, which is exempt under section 10 of the Act. For earning dividend income, the assessee-company had not incurred any expenditure. Hence, no disallowance under section 14A should be made or much less, the disallowance as per rule 8D of the IT Rules. He submitted that the dividend is received from Nirma Ltd. of Rs.3,10,10,076/- which is directly credited in the bank account of the assessee through ECS. This shows that there is no expenditure incurred for earning dividend income.
Cases relied upon:
