Section 14A | Disallowance under Section 14A of Income TAx Act, 1961

Section 14A (Read with Rule 8D) – Conundrum for Assessee’s

Income Tax - The time for completion of Income Tax assessments for A.Y 2016-17 is coming and Sec- 14A is one of the reason of scrutiny assessment of assesse, therefore here I am discussing some topics relating to sec – 14A read with rule 8D to resolve issues....

All about Disallowance under Section 14A with Judicial Pronouncements

Income Tax - 1 Legislative History 1.1 Section 14A was first inserted by the Finance Act, 2001. However, same was inserted with retrospective effect from 1-4-1962. The inserted section reads as under:- ‘14A. Expenditure incurred in relation to income not includible in total income. – For the purposes of computing the total income under this Chapte...

Dividend Stripping Transactions – Income tax provisions

Income Tax - Dividend stripping refers to transacting in shares or securities linked to shares of a company on which dividend is payable. Typically, a dividend stripping transaction can be explained with an illustration....

Section 14A – Surplus own funds, no disallowance U/s. 14A? Borrowed Money Vs. Own Money

Income Tax - The people of the largest democracy in India, expected in the Union Budget 2018 to introduce some amendments to section 14A of the Income Tax Act, 1961 (Act), to reduce tax litigations on account of section 14A and to bring in certainty and clarity in the disallowance under Section 14A....

MAThematical puzzles!

Income Tax - Minimum Alternate Tax, though on the statute since practically 3 decades now, has always been a subject matter of controversy. Even after all the amendments to it over the years, most recently to align it with the Ind-AS provisions, there is still room for filling in certain gaps. This article seeks to raise certain concerns, which, hopef...

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Stop Mechanical disallowance of expenditure u/s 14A r.w. Rule 8D: ICAI

Income Tax - The mechanical disallowance u/s 14A r.w. Rule 8D is also being added to the book profit by the AO irrespective of the fact whether assessee has actually debited any such expenditure in its P&L Account which is against the pronouncements given by various Judicial authorities in the recent past....

Easwar Committee Recommendations For Income Tax Reforms Through Administrative Instructions

Income Tax - 1. IMPLEMENTATION OF IND-AS AND THEIR IMPACT ON TAXABLE INCOME IND-AS (Indian version of IFRS) accounting standards are being implemented with effect from previous year commencing on 1st April, 2015 based on fair value, permitting recognition of unrealised income and anticipated unrealised losses and various other implications on book pro...

Simplify Section 14A to remove ambiguity

Income Tax - Amendments to Section 14A to provide that (i) dividend received after suffering dividend-distribution tax and share income from firm suffering tax in the firm’s hands will not be treated as exempt income and no expenditure will be disallowed as relatable to them; (ii) expenditure disallowed shall not exceed the amount claimed. Recom...

Bombay high court to hear petition challenging Constitutional validity of Rule 8D

Income Tax - As earlier intimated to you, Writ Petition bearing No. 50 of 2010 (Indian Exporters Grievances Forum & Other vs. CIT) challenging the constitutional validity of Rule 8D has been admitted on 12.1.2010 by Hon’ble Shri Justice Dr. D.Y. Chandrachud and Hon’ble Shri Justice J.P. Devadhar of the Bombay High Court. ...

High court will hear Writ Petition challenging the constitutional validity of Rule 8D and matters related to interpretation of section 14A

Income Tax - Writ Petition bearing No. 50 of 2010 (Indian Exporters Grievances Forum & Other vs. CIT) challenging the constitutional validity of Rule 8D has been admitted on 12.1.2010 by Hon’ble Shri Justice Dr. D.Y. Chandrachud and Hon’ble Shri Justice J.P. Devadhar of the Bombay High Court. ...

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If exempt income is Nil, section 14A will not apply

Nekkanti Sea Foods Ltd Vs CIT (ITAT Hyderabad) - Nekkanti Sea Foods Ltd Vs CIT (ITAT Hyderabad) It is settled position of law that the provisions of section 14A can be applied to quantify the expenses in relation to exempt income. Since the exempt income is Nil, section 14A will not apply. The Rule 8D can be applied only when there is difficulty i...

No disallowance of interest U/s. 14A if no borrowed funds were utilized for investments

Essel Mining & Industries Ltd. Vs DCIT (ITAT Kolkata) - Where assessee was having sufficient own funds at its disposal for the purpose of making investments, it could be held that no borrowed funds were utilized for making investments. Hence, there could not be any disallowance of interest under second limb of rule 8D(2) of the rules....

No disallowance u/s. 14A if Interest Income is more than Interest expense

DCIT Vs Universal Industrial Fund Ltd. (ITAT Kolkata) - Where after setting off interest earned against the interest expenditure no further interest expense remains, then disallowance could not be made under section 14A....

Invocation of rule 8D justified if exempt income is earned

Outsource Partners International (P.) Ltd. Vs DCIT (ITAT Bangalore) - Outsource Partners International (P.) Ltd. Vs DCIT (ITAT Bangalore) It was not a case where no exempted income is earned and AO applied rule 8D for as rule 8D of Income Tax Rules takes care of all aspects of interest bearing funds and interest free funds and expenditure incurred in management of por...

No exempt income is received or receivable- No disallowance u/s 14A

PCIT Vs Ballarpur Industries Limited (Bombay High Court) - It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received ...

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Section 14A disallowance cannot exceed total expense: CBDT

Notification No. 43/2016-Income Tax - (02/06/2016) - 2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual aver...

CBDT Circular No. 5/2014 dated 11/02/2014

Circular No. 5/2014-Income Tax - (11/02/2014) - Circular No. 5/2014-Income Tax Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income....

Notification No. 45/2008-Income Tax Dated: March 24, 2008 on Section 14A

Notification No. 45/2008-Income Tax - (24/03/2008) - INCOME TAX NOTIFICATION NO-45/2008, DT: March 24, 2008 Method for determining amount of expenditure in relation to income not includible in total income. 8D(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with-(a) the correctness of ...

Proceedings U/s. 144A & 144B of Income Tax Act, 1961- Procedural Instructions

DOMS-CIRCULAR NO. 11 - (31/12/1977) - The provisions of Sections 144-A and 144-B of the Income-tax Act have come into force with effect from 1st January 1976. Instructions explaining the legal provisions contained in these sections have been issued already in Board’s Instruction No.907, dated the 24th December 1975. The following furt...

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