- (1.) The appeal by the assessee arises from a decision of the Income Tax Appellate Tribunal at Lucknow (the Tribunal) dated 31 January 2014. The assessment year to which the appeal relates is A.Y. 2008-09. Out of a total disallowance of Rs.67.75 lacs made by the Assessing Officer under Section 14A of the Income Tax Act, 1961 (the act), the Tribunal has deleted a disallowance of Rs.66.79 lacs and has confirmed disallowance of the balance of Rs.96,000/-. The assessee is to that extent in appeal.
(2.) The following questions of law have been formulated by the assesse :- (i) Whether ITAT was justified in determining the disallowance of Rs.0.96 lac on account of other expenditure to the extent of 0.5% of average value of investment, when the Assessing Officer had not brought any material or evidence on record to establish that any expense was incurred to earn any tax free income and had also not recorded any satisfaction to the effect that the claim of the assessee that no such expenditure had been incurred was not correct; and (ii) Whether ITAT is justified in adding the proportionate disallowance of Rs.0.96 lac under Section 14A in computing the book profit when the Assessing Officer has neither discussed nor mentioned any reason or justification for making such addition.
(3.) The Assessing Officer, in an order of assessment under Section 143(3) of the Act, observed that the assessee had invested a certain amount of its funds in shares and the dividend received or as was receivable on these investments did not form a part of the total income. However, the assessee had claimed certain expenses on account of interest etc. which were directly attributable to the exempt income. Since the exempt income did not form a part of the total income, the expenditure which was directly related to this income, it was held, could not be debited to the profit and loss account in view of the provisions of Section 14A of the Act. The Assessing Officer, accordingly, applied the provisions of Rule 8D of the Income Tax Rules, 1962 (the rules) and made a total disallowance of Rs.67.75 lacs which was computed as follows: JUDGEMENT_302_LAWS(ALL)9_2014_1.html;