R. JEGATHAMBAL,VIRUDHUNAGAR vs. DCIT, MADURAI

This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Madurai dated 24.08.2016 in for the assessment year 2011-12 passed U/s.250(6) r.w.s. 143(3) & 263 of the Act.

The assessee has raised several grounds in his appeal however the crux of the issue is that the Ld.CIT(A) has erred in partly confirming the order of the Ld.AO by sustaining the disallowance U/s. 14A of the Act, to the extent of dividend income of Rs.46,950/-.

The brief facts of the case are that the assessee is an individual engaged in the business of money lending business, filed her return of income for the assessment year 2011-12 on 29.09.2011 admitting total income of Rs.3,89,970/-. The case was selected for scrutiny and assessment was completed U/s.143(3) r.w.s. 263 of the Act on 21.08.2015 wherein the Ld.AO based on the direction of the Ld.CIT invoked the provisions of Section 14A r.w.r. 8D of the Rules thereby making disallowance of Rs.3,05,910/- because the assessee’s investments in equity shares stood as on 31.03.2010 and 31.03.2011 Rs.6,11,81,910/- and Rs.6,11,81,910/- respectively.

On appeal the Ld.CIT(A) placing reliance in the decision of the Chennai Benches of the Tribunal in the case JCIT vs. Baskaran reported in 152 ITD 844 wherein it was held that in the absence of dividend income no disallowance should be made U/s.14A of the Act, sustained the disallowance of Rs.46,950/- being the amount of dividend income earned by the assessee during the relevant assessment year.

Before us the Ld.AR submitted that the assessee had not incurred any expenditure for earning exempt income which was not considered by the Ld.AO while invoking the provision of Section 14A of the Act. It was therefore pleaded that the order of the Ld.AO as well as that of the Ld.CIT(A) is erroneous and hence the addition sustained by the Ld.CIT(A) may be deleted. The Ld.DR on the other hand relied on the orders of the Ld. CIT(A).

We have heard the rival submissions and carefully perused the materials available on record. We find merit in the submissions of the Ld.AR. Provisions of Section 14A of the Act, mandates the Ld.AO to make a finding as to whether the assessee has actually incurred any expenditure towards earning exempt income during the relevant assessment year. In the case of the assessee such finding is neither made by the Ld.AO nor by the Ld.CIT(A).