We
had earlier discuss in detail about the concepts of disallowance under section
14A read with rule 8D along with various
case laws earlier in two different articles. In case you want to refer, the
same, please click on the link below:
Over
a period of time, there are number of judgements comes from various levels of
courts from different locations of India and hence it is very important to know
the same for the correct treatment of section 14A disallowance.
SN
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Facts
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Name of the
parties
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Reference
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1
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Assessing Officer estimated
Rs.62.34 crores being proportionate interest on borrowed funds towards
earning exempt income and disallowed the same under s. 14A. Assessee’s own
funds are far in excess of the investments made by it which yielded exempt
income. Hence, it has to be presumed that the investments had come from the
interest free funds available with the assessee and the disallowance u/s. 14A
made by the AO in respect of interest cannot be sustained. (A.Y. 2002 – 2003)
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Reliance Industries Ltd v. Addl. CIT
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79 DTR 315(Mum) (Trib.)
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2
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The assessee received Rs. 59 lakhs
as tax-free dividend. It claimed that no disallowance u/s 14A could be made
as it was a dealer in shares and the shares were held as stock-in-trade. The
AO & CIT(A) relied on ITO vs Daga Capital Management (P) Ltd. 119 TTJ
(SB) 289 (Mum) where it was held that s. 14A applied also to shares held as
stock-in-trade and made a disallowance of Rs. 37 lakhs. On appeal by the
assessee to the Tribunal, HELD allowing the appeal:
As the assessee is engaged in the
business of dealing in shares and the shares were held as stock-in-trade, the
intention of the assessee was not to earn dividend income. As the dividend
received was incidental to the business of sale of shares, no notional
expenditure could be disallowed by invoking S. 14A (CCI Ltd vs JCIT (2012) 71
DTR 141 (Kar) & Apoorva Patni (ITAT Pune) (included in file) followed (A.
Y. 2008-09)
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Ethio Plastics Pvt. Ltd v. DCIT
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Ahemdabad ITAT
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3
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The Assessing Officer disallowed
an amount of Rs. 20,53,048 being 5 per cent of the dividend income of Rs. 4,10,60,955.
On appeal, the assessee contended that there was no interest expenditure for
earning the tax-free dividend/income. Further it was also the submission of
the assessee that only 5 dividend cheques totalling to Rs. 4,10,60,759 were
received and therefore disallowance of 5 per cent of the total income on
estimate basis was unjustified. The Commissioner (Appeals) restricted such
disallowance to Rs. 50,000 on the ground that the ad hoc disallowance at the
rate of 5 per cent of the dividend income was too high. On revenue’s appeal ,
the Tribunal held that restricting disallowance to Rs 50000 was held to be
reasonable .(A.Y.1999-2000
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Kirloskar Oil Engines Ltd. v. Dy. CIT
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54 SOT 201(Pune)(Trib.)
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4
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Investment in the form of share
application money should not be considered in computing the disallowance u/s
14A of the Act.
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Unknown
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Unreported
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Hope the above small summary on section 14A will help you in
getting some relief from the hardship from the ITD. In case you have any
further clarification please mail me at taxbymanish@yahoo.comor else visit
my blog at http://taxbymanish.blogspot.in/
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