Section 14A :Disallowance Can’t Exceed Expenditure Claimed !

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Over zealous tax authorities have many time blindly applied Rule 8D read with provision under section 14A to disallow expenditure more than actual claim by the assessee. This create a bizarre situation  where the tax department is disallowing an expense , for which assessee dis not claim any allowance. Gillette Group India (P.) Ltd. vs ACIT 12(1), New Delhi 16 ITR(TRIB.) 57 (DELHI)/[2012] is one such case.

Section 14A disallowance: Facts of the Case

The case relates to assessment year 2008-09 .The total expenditure claimed by the assessee in the profit & loss account was only Rs. 49,04,028/- while the Assessing Officer disallowed Rs. 2,37,59,757/- u/s 14A . On appeal , the CIT(Appeals) also confirmed the order of the A.O.

Section 14A : ITAT Delhi held as under

From the above, it is evident that as per sub-section (1) of Section 14A, no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income. Sub-section (2) of Section 14A provides the procedure for determination of such expenditure by the Assessing Officer. The Board has also prescribed Rule 8D for determining the expenditure incurred by the assessee for earning of exempt income. Thus, the disallowance can be made under sub-section (1) for the expenditure incurred for earning of exempt income. In the case under appeal before us, from the perusal of the assessee’s profit & loss account, it is evident that the total expenditure incurred was Rs. 49,04,028/- only. Thus, the assessee claimed the deduction for the expenditure of Rs. 49,04,028/- which is debited to the profit & loss account. The disallowance cannot exceed the expenditure actually claimed by the assessee. We, therefore, accept the assessee’s contention that the disallowance made by the Assessing Officer and sustained by the learned CIT(A) in excess of total expenditure debited to profit & loss account was unjustified. Accordingly, we restrict the disallowance to the extent of expenditure actually claimed by the assessee i.e. Rs. 49,04,028/-.

Although this kind of mindless orders of disallowance u/s 14A of the Income Tax Act  are not the order of day , yet readers should file instant appeal quoting the above decision of ITAT , Delhi