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2017 (6) TMI 335 - AT - Income TaxReworking the disallowance u/s 14A - Held that:- Since the investment was made out of surplus funds, no further disallowance is required to be made u/s 14A of the Act as section 14A provides for disallowance of expenditure incurred “in relation to” income which does not form the part of the total income, meaning thereby, there should be direct nexus between the actual expenditure incurred for the purpose of earning tax free income. No doubt, the word “in relation to” appears to be broad at firm impression but on deeper examination and read in conjunction with the word “incurred” it seems that these are restrictive words, restricting the power of Assessing Officer to estimate a part of expenditure, incurred by the assessee, to produce nontaxable income. To elaborate further, the word “incurred” refers to factual spending of expenditure in relation to exempt income and does not refer to deemed spending or assumed spending for the purpose. While applying the section, there is no authority conferred by the section upon Assessing Officer to deem or assume certain expenditure to have been incurred in relation to tax free income. The proximity cause of disallowance u/s 14A is its relationship with the tax exempt income. Wherever the expenses incurred has no relationship with the income not includible in the total income, there cannot be any occasion to invoke the provision for making the disallowance u/s 14A of the Act. Thus it can be concluded that at best further disallowance of ₹ 28,815/-, as agreed by the assessee, can be made. Thus, this ground of the assessee is partly allowed. Reworking of disallowance towards administrative expenses of ₹ 50,000/-, ad-hoc basis is concerned, during hearing the Ld. counsel for the assessee, claimed that no long term capital gain was earned by the assessee. The Ld. Assessing Officer made disallowance of ₹ 1 lakh on account of salary, printing and stationary, bank charges and general expenses, which were reduced to ₹ 50,000/- by the Ld. Commissioner of Income Tax (Appeal). Considering the totality of facts and the circumstances narrated before us, the disallowance on account of administrative expenses is reduced to ₹ 25,000/- as against ₹ 50,000/-, sustained by the Ld. Commissioner of Income Tax (Appeal), thus, this ground of the assessee is partly allowed.
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