Disallowance u/s 14A in respect of expenditure in relation to exempt dividend income if “Reasons for invoking rule 8D not given by AO”
Short Notes:
AO cannot straightway proceed to reject amount offered by assessee for disallowance as expenditure in relation to exempt dividend income in terms of section 14A, without adducing any reasons or explanation for such rejection.
Assessee claimed exempt dividend income and offered suo motu disallowance in terms of section 14A for expenditure incurred in relation to earning dividend income. AO rejected the disallowance offered by assessee and enhanced the same by invoking rule 8D.
It was held that AO merely proceeded to reject such amount as expenditure and straightaway applied rule 8D without adducing any reasons. Unless AO rejected the explanation or the rationale, which induced the assessee to offer particular amount as expenditure with some reasoning, the mere rejection per secannot be accepted.
Followed: CIT v. Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del) : 2015 TaxPub(DT) 0391 (Del-HC), and Moonstar Securities Trading and Finance Co. (P) Ltd. v. ACIT [ITA Nos. 621, 622 & 623/Del/2013, dt. 9-6-2017].
IN THE DELHI HIGH COURT
S. RAVINDRA BHAT & A.K. CHAWLA, JJ.
Pr. CIT v. Moonstar Securities Trading & Finance Co. (P) Ltd.
ITA No. 81/2018, CM Appl. No. 2787/2018, ITA No. 83/2018, CM Appl. No. 2788/2018
24 January, 2018
Appellant by: Rahul Chaudhary, Sr. Standing Counsel.
Respondent by: None
ORDER
In these two appeals, identical questions are sought to be urged with respect to the disallowance made under section 14A. The assessee had claimed receipt of tax exempt income by way of dividends for the relevant years. It was subjected to search and was issued with notices under section 153A. Disallowances were made in the course of the search assessment proceedings. The relief granted by the impugned order was based upon the decision of this Court in CIT-VI v. Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del) : 2015 TaxPub(DT) 0391 (Del-HC) where it was held that unless the assessing officer rejected the explanation or the rationale which induced the assessee to offer particular amount as expenditure with some reasoning, the mere rejectionper se cannot be accepted. In this case for both years, the assessee had offered amounts as disallowance claiming them to be expenditure for tax exempt income. The assessing officer merely proceeded to reject such amount as expenditure and straightaway applied rule 8D without adducing any reasons. Consequently, the principle enunciated in Taikisha Engineering (supra) clearly applied.
As a result, it is held that the ITAT did not fall into error in holding as it did; no substantial question of law arises. The appeals are accordingly dismissed.
