Inter Globe Finance Limited Vs DCIT (ITAT Kolkata)
No breach of Natural Justice when reply considered – Rule 8d(2)(iii) invoked validly by AO for Section 14A disallowance in absence of satisfactory explanation; ITAT Kolkata Upholds ₹14.32 Lakh Disallowance u/s 14A: No Evidence Provided by Assessee; No Violation of Natural Justice in 14A Disallowance When Show Cause Was Replied To.
The key issues involved are
1) Validity of Section 14A disallowance of ₹14.32 lakh (1% of investments).
2) Alleged addition of exempt dividend income of ₹3.38 lakh—whether actually made.
3) Allegation of violation of natural justice due to lack of hearing opportunity.
Assessee declared income of ₹1.24 crore in return filed u/s 139. Scrutiny assessment u/s 143(3) made an addition of ₹14.32 lakh u/s 14A r.w. Rule 8D(2)(iii)—being 1% of average investment (~₹14.32 crore). Investments included- ₹80.58 lakh in mutual funds & others & ₹16.28 crore as closing stock of shares. AO held assessee’s claim of nil expenditure on exempt income not acceptable.
CIT(A) upheld the disallowance, reasoning that managing such a large portfolio entails expenses (admin, rent, etc.) & that some expenditure is attributable to earning exempt income.
Tribunal noted that AO issued a show cause notice & Assessee replied but did not substantiate nil disallowance. Before CIT(A), no effective representation was made. Tribunal held that Rule 8D(2)(iii) is applicable in absence of satisfactory explanation. There was no addition of exempt dividend income separately. Natural justice claim was rejected since reply was considered & opportunities were given.
