By TIOL News Service

AHMEDABAD, DEC 21, 2018: THE ISSUE IS - Whether Revenue can make disallowance of any amount for administrative expenses u/s 14A r.w.r. 8D without referring to the amount claimed in books of accounts. NO IS THE VERDICT.

Facts of the case

++ provision of Rule 8D requires to make the disallowance of the expenses even if the assessee claim that he has not incurred any expense in relation to such dividend income. But the AO before making the disallowance needs to refer the books of accounts. In the instant case, the assessee has claimed total administrative expenses amounting to Rs. 8,73,482/- only. Out of such expenses, there were two major expenses of Rs. 2,45,000/- and 4,69,443/- under the head loss on sale of fixed assets and travelling expenses respectively. If we exclude these two major expenses the remaining expenses are of Rs. 1,59,039/- only which can only be considered for the purpose of disallowance u/s 14A r.w.r. 8D. It is because the amount of expenses represented on account of loss on sale of fixed assets and travelling expenses cannot be linked with the expenses incurred for the purpose of earning the exempted income. It was held that the AO has made the disallowance u/s 14A r.w.r 8D without having regard to the books of accounts of the assessee as mandated under the provision of Section 14A r.w.r. 8D. The jurisdiction to apply the provision of Section 14A of the Act contemplates satisfaction of the AO after having regard to the books of accounts of the assessee. The AO exercised his jurisdiction against the provision of law i.e. without referring to the books of accounts. Therefore, the disallowance of the expenses cannot be made;

++ the assessee also claimed Demat charges amounting to Rs. 3,569/- which are directly connected with the dividend income as envisaged in the provision of Rule 8D (2)(i) of Income Tat Rule. Therefore, it was decided to sustain the addition of Rs. 3,569/- on account of Demat Charges. Thus, it was decided to set aside the order of CIT(A) and direct the AO to delete the addition of Rs. 5,70,349/- only. Hence, the ground of appeal of the assessee is partly allowed.

(See 2018-TIOL-2459-ITAT-AHM)