PCIT-7 Vs UK Paints India Pvt. Ltd. (Delhi High Court)
Delhi High Court held that recourse to Rule 8D of Income Tax Rules for computing disallowance u/s. 14A not allowable since assessee’s computation of expense attributable to earning exempt income not found inadequate.
Facts- Revenue has preferred the present appeal mainly contesting the quantum of disallowance under section 14A of the Income Tax Act. Notably, assessee suo moto computed disallowance under section 14A to Rs. 7,50,000/-, whereas, AO computed disallowance under section 14A by applying rule 8D of Income Tax Rules at Rs. 93,62,120/-.
CIT(A) proceeded to make adhoc disallowance of Rs. 20,00,000/-. Being aggrieved, revenue has preferred the present appeal.
Conclusion- It is well settled that recourse to Rule 8D of the Rules for computing the disallowance under Section 14A of the Act is available only if the Assessee’s computation of expenses attributable to earning exempt income, is found to be inadequate.
Held that the AO had not found fault with the Assessee’s computation of expenditure allocable to exempt income and, therefore, recourse to Rule 8D of the Rules for determining the expenditure incurred for earning exempt income, was not available. It is also relevant to highlight that the learned CIT(A) had also noted that the AO had not found the Assessee’s computation expenditure for earning exempt income as inadequate.
