Case Law Details
Objective satisfaction of the AO as to the correctness of the assessee’s claim was not recorded in the instant case. However, even if Rule 8D cannot be applied, the AO is obliged to ascertain the expenditure which had been incurred to earn the tax-free income.
He must adopt a reasonable basis consistent with the relevant facts and circumstances of the case. The appellant’s dividend income during the year is Rs. 3,33,320/- and appellant estimated an expenditure of 2% of dividend income as related to exempt income and disallowed an amount of Rs.6,666/- in the computation of total income. The expenditure estimated by the appellant appears to be highly inadequate. Appellant has to incur various direct and indirect expenses in as much as the efforts of the employees go in tracking the mutual fund and other investments, purchase and sale of mutual funds and other assets, deposit of the dividend warrants, portfolio management etc. Considering the facts and circumstances of the case and judicial precedents discussed in preceding paras, a sum of Rs. 50,000/- is considered as reasonable expenditure to earn the exempt income. Accordingly, the dis allowance is restricted to Rs.50,000/-.
Counsel for the assessee places reliance on the decision of the co-ordinate Bench of this Tribunal in the case of Shiva Distilleries in ITA No.2125/Mds/2012 dated 26.8.2013 in support of his contention that in the absence of any satisfaction recorded by the Assessing Officer in regard to the correctness of the claim of the assessee that it had not incurred any expenditure, no dis allowance under section 14A of the Act can be made.
INCOME TAX APPELLATE TRIBUNAL, CHENNAI
BEFORE Dr. O.K. NARAYANAN, VICE-PRESIDENT
Please become a Premium member. If you are already a Premium member, login here to access the full content.
