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TMI Blog2014 (1) TMI 1622X X X X Extracts X X X X X X X X Extracts X X X X ..... relates to disallowance of expenses by invoking the provisions of section 14A read with rule 8D(2) of the Income-tax Act. 3. Rival contentions have been heard and record perused. The facts in brief are that the assessee derived exempt income from dividend long-term capital gains on equity shares and equity oriented funds. During the course of scrutiny assessment, the Assessing Officer rejected the disallowance worked out by the assessee and the Assessing Officer himself worked out disallowance at Rs. 10,40,025 by applying rule 8D read with section 14A of the Income-tax Act, 1961. The Assessing Officer observed that management expenses were incurred in relation to exempt income, accordingly he proportionately made disallowance under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an off shoot of sub-section (2) of section 14A. . . While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment in shares and mutual funds resulted into exempt income of Rs. 4,55,83,040. All the expenses, except security transaction tax, were related to its manufacturing and trading activities and they have no relation with the exempt income earned during the year. We have analysed the expenses so incurred by the assessee with respect to the exempt income earned and found that expenses incurred at Abu Road, where the manufacturing facilities of the assessee were located, were directly related to marble and granite manufacturing activities of the assessee. However no investment activities were carried out therefrom. As these expenses were not at all related to investment activities of the assessee, they are outside the purview of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses which are directly related to income subjected to tax and (c) expenses which are related to exempted as well as taxable income of the assessee. After considering the various expenditure so incurred, the disallowance envisaged under section 14A of the Income-tax Act, 1961 is worked out at Rs. 4,36,416, the details of which are as follows : Exempted income/total revenue x indirect expenses related to exempted income =4,55,83,040/24,08,14,308*23,05,577 =4,36,416 5. Accordingly, we modify the orders of the lower authorities and direct the Assessing Officer to restrict disallowance under section 14A to the extent of Rs. 4,36,416. 6. In the result the appeal of the assessee is allowed in part. The order pronounced on January 22, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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