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2015 (8) TMI 1431 - AT - Income Tax
Disallowance u/s 14A - Held that - Maximum disallowance in this case cannot exceed the amount of exempt income received by the assessee i.e. Rs. 34, 445/-. Hence restrict the disallowance to Rs. 34, 445/- and allow the balance in favour of the assessee. See CIT Versus Holcim India P. Ltd 2014 (9) TMI 434 - DELHI HIGH COURT
Issues: Disallowance u/s 14A of the Income Tax Act
Issue Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2006-07. The main issue for adjudication was the disallowance under section 14A of the Income Tax Act. The Assessing Officer disallowed Rs. 3,00,000 under section 14A as the assessee received a dividend of Rs. 34,445.
After considering the arguments, the judge referred to a decision of the Delhi High Court in the case of CIT vs Holim India (P) Ltd. The judge highlighted that Section 14A disallows expenditure incurred by the assessee in relation to income that does not form part of the total income under the Act. The judge emphasized that if no tax-free income was earned, the corresponding expenditure for disallowance cannot be calculated. The judge cited various High Court decisions supporting this interpretation.
The judge noted that income exempt under Section 10 in a particular assessment year may become taxable in future years based on transactions. The judge highlighted that the respondent, being an investment company, had invested in shares and could potentially sell them in the future. The judge emphasized that the disallowance should not exceed the exempt income received by the assessee, which was Rs. 34,445. Therefore, the judge restricted the disallowance to this amount and allowed the balance in favor of the assessee.
In conclusion, the appeal of the assessee was partly allowed, and the disallowance under section 14A was restricted to the amount of exempt income received by the assessee.