Disallowance under sec 14A can be made if the expenditure related with exempted income

Last updated: 04 February 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
First issue which is common in both the appeals relates to addition made under sec. 14A of the Act. The facts of the case stated in brief are that the assessee is a company engaged in chain of Chinese food restaurants. During the year under consideration the assessee received dividend of Rs.19,73,982/-. In response to a query, it was submitted by the assessee that dividend income has been earned by it from mutual funds the investment wherein was made out of fresh capital received during the year under consideration and also from zero coupon preference shares issued by the assessee company. According to the assessee, share capital obtained during the year under consideration was not immediately required for any business activity and therefore, same was parked temporarily in mutual funds. Thus, according to the assessee, there was no interest expenditure incurred in accordance with the earning of dividend income. Similarly in regard to other indirect expenses also, it was claimed that the assessee did not incur any expenditure direct or indirect for earning dividend income and also no man power was deployed for this purpose entailing any expenses. However, this contention of the assessee was rejected by the Assessing Officer. The AO relying on the decision of ITAT, Special Bench in the case of ITO vs. Daga Capital Management (P) Ltd., made disallowance by applying Rule 8D of the Income-tax Rules, 1962 of Rs.13,83,959/- which included interest expenses of Rs.7,25,050/- and the balance indirect expense was of Rs.6,58,909/-.

Citation :
Moods Hospitality Pvt. Ltd., D-363, Defence Colony, New Delhi.PAN:AADCM5127C (Appellant)Vs.Income-tax Officer,Ward No.5(4), New Delhi.(Respondent)