Disallowance under Section 14A of Income TAx Act, 1961
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Maxopp Investment Ltd vs. CIT (Delhi High Court) – Even for the pre-Rule8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incuured in relation to income which does not form part of total income, the assessing officer will have to verify the correcteness of such claim.
Mitsutor Shipping Agency Pvt Ltd Vs DCIT (ITAT Mumbai)- The assessee was owner of the premises in which it was carrying on business. The assessee paid maintenance charges to the society of Apartment Owners. According to the AO the assessee ought to have deducted tax at source on the payment of maintenance charges to the society as the payment by the assessee to the society was in the nature of contract and, therefore, the provisions of section 194C was applicable.
ITC Limited Vs DCIT (ITAT Kolkata)– We have carefully considered the submissions of the ld. representatives of the parties and the orders of the authorities below. We have also gone through the details of the expenditure aggregating Rs. 9,00,111 claimed by the assessee, the break-up of which has already been mentioned herein above. We observe […]
Deepak Fertilisers & Petrochemicals Corporation Ltd. Vs. DCIT (ITAT Mumbai)- Whether the assessee is entitled to claim expenses for obsolete stores/ spares on provisional basis or it will be allowed in the year in which it is sold
DCIT Vs. Jindal Photo Limited (ITAT Delhi)- As per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee ’s total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee.
ACIT Vs. Punjab State Coop & Marketing (ITAT Chandigarh)- The assessee has placed on record the details of investment along with the amount of investment in shares in five companies made by the assessee. On perusal of the said details reveal that majority of the investments were made prior to 1994 and on the said investments
Mid-Day Multimedia Ltd Vs Dy. CIT (ITAT Mumbai)- The provisions of rule 8D of the Rules which have been notified with effect from March 24, 2008, would apply with effect from assessment year 2008-09. Even prior to assessment year 2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section (1) of section 14A. For that purpose, the AO is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The AO must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record.
Dis-allowance on the ground that the assessee has diverted interest bearing funds into tax-free income can not be made where the assessee owes ample interest free funds on the date of investment.
The AO’s argument that the assessee could have utilized its surplus funds for repaying the borrowings instead of investing in shares and by not doing so, there was diversion of borrowed funds towards investment in shares to earn dividend income is not acceptable in view of CIT vs. Hero Cycles Ltd 323 ITR 518 (P&H) where Abhishek Industries was distinguished and it was held disallowance u/s 14A of interest on borrowed funds was not permissible if the investment in shares was made out of own funds.
CIT vs. Gujarat Power Corporation Ltd (Gujarat High Court) – Assessee is fully justified in arranging its affairs in such a manner where his tax liability is reduced provided the assessee does not resort to any illegal means or enter into a sham transaction for the said purpose. It is the prerogative of the assessee to use its own fund in the manner in which it considers proper. The Revenue cannot dictate the assessee that how the assessee should use its own fund. Thus in our considered opinion the A.O.’s approach in the instant case was not justified. The nexus between the interest bearing fund and interest free investment as claimed by the A.O. was not correct when it is not in dispute that the own funds were utilized for making tax free investment.
