By K. B. BHUJLE
Advocate
33. Principal CIT vs. DSP Adiko Holdings Pvt.
Ltd.; 414 ITR 555 (Bom.)
Date of order: 3rd
June, 2019
A.Y.: 2009-10
Section 14A of ITA, 1961 r.w.r.
8D(2)(iii) of ITR, 1962 – Exempt income – Disallowance of expenditure relating
to exempt income – Voluntary disallowance by assessee of expenditure incurred
to earn exempt income – AO cannot disallow expenditure far in excess of what
has been disallowed by assessee
The assessee was in investment
business. It earned interest income from investment in mutual funds. It claimed
total expenses of Rs. 24.19 lakhs and voluntarily disallowed an amount of Rs.
7.79 lakhs as expenditure relatable to earning tax-free income u/s 14A of the
Income-tax Act, 1961. The AO rejected such working and applied Rule 8D(2)(iii)
of the Income-tax Rules, 1962 and made a disallowance of Rs. 2.19 crores.
The Commissioner (Appeals)
restricted the disallowance to Rs. 24.19 lakhs, the amount which was claimed as
total expenses. The Tribunal reduced it further to the assessee’s original
offer of Rs. 7.79 lakhs.
On appeal by the Revenue, the
Bombay High Court upheld the decision of the Tribunal and held as under:
“(i) The computation of the AO would lead to disallowance of
expenditure far in excess of what was claimed by the assessee itself. The
assessee’s entire claim of expenditure in relation to its business activity was
Rs. 24.19 lakhs out of which the assessee had voluntarily reduced the sum of
Rs. 7.79 lakhs in relation to income not forming part of the total income u/s
14A which was accepted by the Tribunal.
(ii) Quite apart from the correctness of the approach of the Tribunal,
accepting the stand of the AO would lead to disallowance of expenditure far in
excess of what is claimed by the assessee itself. No question of law arose.”
