ASHWINI MANMOHAN KAKKAR,MUMBAI vs. DY.CIT.,-1(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद� राजे� के अनुसार PER RAJENDRA, AM- Challenging the order dt.31.1.2011 of CIT(A)-2, Mumbai the assessee has filed the present appeal raising three Grounds of Appeal.During the course of hearing before us the Authorised Representative (AR)did not press Ground No.1. Hence, same stands dismissed as not pressed. 2.Ground No.2 is about disallowance of Rs.5.75 lakhs u/s.14A of the Act r.w. Rule 8D of the Income tax Rules, 1961 (Rules). During the assessment proceedings the Assessing Officer (AO)found that the assessee had received dividend income of Rs.36,466/-.Applying the judgment of the Hon'ble Bombay High Court in the case of Godrej & Boyce Co. Ltd.,the AO made a disallowance of Rs.5,75,033/- u/s. 14A for earning tax free income. Aggrieved by the order of the AO,the assessee contended before the First Appellate Authority that no expenditure was incurred in relation to earning of exempt income directly or indirectly, that the disallowance should be based on a reasonable method. Upholding the order of the AO,the FAA dismissed the appeal of the assessee. 3.Before us,the AR contended that assessee had not incurred any expenditure for earning exempt income, that it had not incurred interest expenditure, that it had received interest of Rs.80,022/-from others, that the AO had by mistake considered the said amount as interest expenditure,that the assessee had shown professional fees of Rs.90 lakhs and salary of Rs.3.30 crores,that the AO had not recorded his satisfaction before making the disallowance, that the assessee had incurred the expenses for his business only. Alternatively, it was argued that reasonable disallowance should be made.The Departmental Representative (DR) supported the order of the FAA. 4.We have heard the rival submissions and perused the material available on record. We find that the assessee had received exempt income of Rs.36,466/- only, that the AO had made disallowance of Rs.5.75 lakhs, that he had not given any reason for applying provisions of Rule 8D of the Rules. In our opinion, for making disallowance u/s. 14A r.w.r Rule 8D of the Rules the first pre-condition is incurring of expenditure by an assessee for earning exempt income.In this case the AO/FAA had not mentioned as to how much expenditure was incurred by the assessee.They had mechanically applied the provisions of Section/Rule 8D.In our opinion,the approach of the FAA is not legally sustainable.Considering the amount

1538/M/12-Ashwini MK