S. 14A & Daga Capital cannot put assessee in worse position

The assessee earned dividend income of Rs. 7.57 lakhs but the AO disallowed Rs. 20.73 lakhs u/s 14A as being relatable to the said income. The CIT (A) gave part relief. In deciding cross appeals, HELD

 

As the assessee had earned tax-free dividend income, s.14A was applicable. The question of determination of the disallowable amount has to be worked out by the AO as per Rule 8D as held the Special Bench judgement in ITO Vs. Daga Capital Management Pvt. Ltd. (2008) 119 TTJ (Mum) (SB) 289. However, the disallowance u/s 14A in the fresh proceedings cannot exceed the original amount disallowed by the AO in the assessment order.