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2008 (3) TMI 505 - ITAT DELHIDisallowance of personal and administrative expenses u/s 14A - an ad hoc and arbitrary basis - Expenditure incurred in relation to income not includible in total income - Assessee claimed dividend income as exempt u/s 10(33) - HELD THAT:- In the instant case, there is no specific finding by any of the lower authorities to the effect that any particular expenses of such nature have been really incurred in relation to the dividend income claimed as exemption under section 10(33) of the Act. On the other hand, the assessee has categorically denied of having incurred any expenditure for earning such exempted income. In the instant case, the relevant assessment years under consideration are 2001-02 and 2002-03, to which the provisions of sub-sections (2) and (3) of section 14A is not applicable. The expenses for earning exempt income cannot be allowed to be deducted while computing any taxable income, however, at the same very time under section 14A of the Act, it is for the revenue to prove that the expenditure are incurred in relation to income which does not form part of total income. In the absence of such findings, the Assessing Officer is not entitled to presume on an ad hoc basis that some portion of the expenses have been incurred for earning the dividend income. In case of Wimco Seedling Ltd.[2006 (12) TMI 65 - ITAT, DELHI], it was observed that every item of expenditure which has no apparent connection or nexus with the earning of tax-free income cannot in part be attributed on some yard stick, whatever may be the sanctity behind such yard stick. For such assumption or deeming, there is no authority given in the section as it stood prior to introduction of sub-sections (2) and (3) of section 14A, which came into force only from assessment year 2007-08 onwards that authority is given to the Assessing Officer to determine, on the basis prescribed, the amount of expenditure incurred in relation to income which is exempt from income-tax. In the instant case, the assessee has given full details of the exempted income earned and the expenditure income, and claimed that no expenditure was incurred for earning such exempted income. The Assessing Officer was, therefore, not justified in assuming proportionate expenses as having been incurred for earning dividend income, without pin pointing the so-called expenditure. In the result, both the appeals of the assessee are allowed.
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