DCIT (OSD) 2(3), MUMBAI vs. SUBHKAM VENTURES INDIA P.LTD, MUMBAI

Effective Ground of appeal is about restricting the disallowance u/s.14A of the Act to Rs.25.88 lakhs.During the assessment proceedings,the AO found that the assessee had earned exempt income of Rs.1.60 crores(Rs.67.20 lakhs dividend income and Rs.93.45 lakhs LTCG), that the assessee itself had made a disallowance of Rs.25.09 lakhs u/s.14A r.w. Rule 8D of the Income tax Rules ,1962(Rules).The AO directed the assessee to file explanation in that regard. After considering the submission of the assessee the AO held that the whole of the administrative expenses,STT and depreciation aggregating to Rs.1.05 crores was directly attributable to the exempt income, that whole of the interest expenses (Rs.52.11 lakhs) and bank charges of Rs.17,493/- incurred by the assessee were directly attributable to earning of exempt income.Thus,he made aggregate disallowance of Rs.1.57 crores u/s.14A r.w.Rule 8D.Without prejudice to the above the AO computed the disallowance u/s.14A r.w.Rule 8D (2)(iii)at Rs.8.90lakhs, that he also disallowed claim of interest of Rs.52.11 lakhs u/s.36 (1) (iii).However in the assessment order the AO made disallowance of Rs.1.57 crores only (Rs1.05 crores + Rs.52.11lakhs).

6973/M/14-Subhkam ventures 3.Aggrieved by the order of the AO assessee preferred an appeal before First Appellate Authority (FAA) and made elaborate submission and relied upon certain case laws. After considering the submissions of the assessee and the assessment order,he held that the investment in the shares had remained same at Rs.17.61 crores in the beginning and end of the year,that the assessee had not carried out any substantial investment activity during the year,that the investments had infact decreased, that the AO was not justified in making disallowance of almost whole of the expenditure debited in the P&L Account,that when an assessee was engaged in trading activity in shares it had to incur administrative and other expenses necessarily,that the expenditure of such activities had to be allowed,that to maintain the corporate-existence the assessee would be compelled to incur certain expenditure, that there was no trading activity during the year,that the assessee had still made a disallowance of Rs.25.09 lakhs on its own, u/s. 14A of the Act. Referring to the provisions of section 14A, he observed that AO can make the disallowance only if he was not satisfied with the claim of the assessee regarding disallowance, that the AO's decision was purely subjective,that he did not consider the facts furnished before him during the assessment proceedings.Finally,he held that the suo-motu disallowance made by the assessee appeared to be justified and directed the AO to delete the disallowance.