SYLVEX CABLE CO. P. LTD,MUMBAI vs. DCIT CEN CIR 37, MUMBAI

None appeared on behalf of the assessee inspite of notice by RPAD. Therefore we heard the Ld. Departmental Representative and dispose of this matter ex parte on merit.

The Ld. Departmental Representative submits that the AO while completing the assessment noticed that the assessee received dividend income and therefore disallowed Rs. 39,63,654/- as expenditure attributable for earning such income by invoking the provisions of Sec. 14A of the Act.

On appeal, the Ld. CIT(A) sustained the disallowance observing that the AO computed the disallowance u/s. 14A r.w. Rule 8D(2)(iii) being 0.5% of the average value of investment shown in the balance sheet and therefore the action of the AO is correct.

We find from the assessment order that the assessee in the course of assessment proceedings submitted working of disallowance of expenditure u/s. 14A of the Act and such working was made considering only those investments which would yield dividend. But the AO has taken 0.5% of average value of total investments appearing in balance sheet.

We find force in the submissions of the assessee that only those investments which would yield dividend and which is exempt should be considered for disallowance under Rule 8D(2)(iii). We also hold that the disallowance under section 14A should not exceed the dividend income earned by the assessee. We direct the AO to re- compute the disallowance taking only those investments which yield dividend income and apply Rule 8D(2)(iii) and such disallowance should not exceed the dividend income earned by the assessee.

In the result, the appeal filed by the assessee is treated as allowed for statistical purpose. Order pronounced in the open court on 24th February, 2016.