Kolkata ITAT: no reason found for the suo motu disallowance to be disturbed

 

Issue: Sec 14 A read with Rule 8D: Retrospective vs Prospective application of Rule

The ground of appeal related to disallowance made u/s. 14A read with rule 8D of the Income-tax Rules, 1962. During the assessment year under consideration, the appellant assessee had shown a dividend income of Rs. 74,25,000/- claimed as exempt income u/s. 10(34) of the Act. The suo motu disallowance computed by the appellant assessee in the return of income at Rs. 4,69,487/- u/s. 14. During the assessment proceedings the assessee was directed to file the details of tax free income earned by the assessee and to explain why provisions of section 14A of the Act should not be invoked. In response to that the assessee submitted its reply on 14-12-2016 along with calculation for such suo motu disallowance u/s. 14A as it also reflected from the order passed by the Ld. AO. However, such explanation as rendered by the assessee was not found acceptable and considering the CBDT Circular dated 11-02-2014 and the recent Amendment in Rule 8D vide Notification dated 02-06-2016, the disallowance of expenditure u/s. 14A of the Act the Ld. AO computed the disallowance of Rs. 2,67,07,781/- at 1% of the average monthly balance of the investment. Since the assessee had suo motu disallowed expenditure of Rs. 4,69,487/-, the balance amount of Rs. 2,62,38,194/- was disallowed/added back to the total income of the assessee by the AO.

Ambuja Housing & Urban Infrastructure Co.Ltd vs Dict, Cir.-11(1)