One More : AO cannot make disallowance resulting into a total disallowance u/s 14A, which is more than the exempt income

 

AO cannot make disallowance resulting into a total disallowance u/s 14A, which is more than the exempt dividend income actually earned by the assessee during the year under consideration

Income—Expenditure incurred in relation to income not includible in total income—Assessee filed return of income which was subsequently revised—During assessment proceeding, AO found that assesee had earned dividend income on investment made in Shares and Units of Mutual Funds and same was claimed to be exempt from tax—Assessee had disallowed only direct and indirect expenses as per Rule 8D r/w s. 14A—Accordingly, AO completed assessment after making disallowance on account of common administrative and managerial expenses, which assessee might have incurred for earning exempt income as per Rule 8D(2)(iii)—CIT( A) deleted additions made by AO—Held, although DR had challenged action of CIT(A) in holding that Rule 8D was not applicable in assessee’s case, Counsel for assessee had rightly contended that total disallowance was suo motu offered by assessee u/s 14A and same being more than exempt dividend income received by assessee during year under consideration, a further disallowance made by AO which exceeded even exempt dividend income was not sustainable—Thus, impugned order of CIT(A) deleting disallowance made by AO u/s 14A was confirmed—Revenue’s ground dismissed.

ASSISTANT COMMISSIONER OF INCOME TAX vs. OBEROI HOTELS (P) LTD.

(2019) 55 CCH 0419 KolTrib