2017 (12) TMI 1611 - AT - Income Tax

Disallowance of interest expenses as attributable to earning of dividend income - Held that - We find that the assessee has earned dividend income of Rs. 7, 338/- from investment activities carried out by him which is claimed as exempt from Income Tax Act. AO has disallowed the interest expenditure to the tune of Rs. 3, 05, 731/- against the aforesaid expenditure. We find merit in the limited plea of the assessee that the expenditure should be restricted to the extent of dividend income. A decision of the Hon ble Delhi High Court in the case of CIT vs. Taikisha Engineering (I) Ltd. 2014 (12) TMI 482 - DELHI HIGH COURT where in similar facts observed that the disallowance of expenditure should not ordinarily exceed dividend income. In the light of forgoing discussion we direct the AO to restrict the disallowance of interest expenditure to the extent of dividend income actually earned. - Decided partly in favour of assessee

Summary

Issues: Disallowance of interest expenses against dividend income

In this case, the appellant, an assessee, filed an appeal against the order of the Commissioner of Income Tax(Appeals) regarding the disallowance of interest expenses amounting to Rs. 3,05,731 attributable to dividend income of Rs. 7,338. The main contention was that the disallowance should be restricted to the extent of dividend income earned, as the income was exempt from tax. The tribunal, with reference to previous decisions, directed the Assessing Officer to limit the disallowance of interest expenditure to the amount of dividend income earned. The tribunal relied on the decision of a Coordinate Bench of Tribunal and the judgment of the Hon'ble Delhi High Court in a similar case to support its decision. As a result, the appeal of the assessee was partly allowed, and the disallowance of interest expenditure was restricted to the actual dividend income earned by the assessee.