Disallowance Cannot Exceed Total Expenditure under S. 14A & Rule 8D

Gillette Group India Pvt.Ltd. vs. ACIT (ITAT Delhi)(155.4 KiB, 807 DLs)

S. 14A & Rule 8D Disallowance Cannot Exceed Total Expenditure
 

 

In AY 2008-09, the assessee earned tax-free dividend income. Its’ total expenditure as per the P&L A/c was Rs. 49 lakhs. The AO applied Rule 8D and made a disallowance u/s 14A of Rs. 2.37 crores which was reduced by the CIT (A) to Rs. 1.78 crores. Before the Tribunal, the assessee claimed that even assuming that the entire expenditure had been incurred to earn the dividend, the disallowance u/s 14A & Rule 8D could not exceed the expenditure incurred. HELD accepting the plea:
 

U/s 14A read with Rule 8D, disallowance can be made for the expenditure incurred for earning of exempt income. From the assessee’s P&L A/c, it is evident that the total expenditure incurred was Rs. 49 lakhs only which was claimed as a deduction. The disallowance u/s 14A & Rule 8D cannot exceed the expenditure actually claimed by the assessee. Accordingly, the action of the AO & CIT (A) in making disallowance in excess of total expenditure debited to P&L A/c is unjustified.

The other judgements on the subject:

Search Enviro Ltd (ITAT Mumbai)

Tecumseh India vs. ACIT (ITAT Delhi Special Bench)

Quippo Telecom Infrastructure Ltd vs. ACIT (ITAT Delhi)

ACIT vs. Punjab State Coop & Mktg (ITAT Chandigarh)

Courtesy: ITATonline.org