TaxTMI 
TaxTMI 
2012 (10) TMI 857
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.....26,498/-. The assessee company had dividend income of Rs.41,82,220/-, which claimed as exempt under Section 10(34) of the Income Tax Act, 1961. The only other income assessee had was bank interest of Rs.19,941/-. The assessee capitalized the interest expenditure and had not claimed the same as an expense either in the Profit & Loss a/c or in its income tax computation. The Assessing Officer made a disallowance under Section 14A read with Rule 8D on an amount of Rs.45 lakhs being interest paid to ICICI bank on purchase of shares of Uflex Ltd. and a further amount of Rs.6,51,918/- being ½% of average investment under Rule 8D(2). 3. On appeal the First Appellate Authority upheld the order of the Assessing Officer. Further aggriev....
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.... can be disallowed, when it is not claimed as an expense. The assessee has not claimed Rs.45 lakhs as an expense while computing its income. Under the circumstances, making a disallowance under Section 14A is bad in law. We do not understand how an expenditure can be disallowed, when the same has not been claimed as a deduction. 8. If the Department's argument that the assessee should have claimed the expense is accepted, then the Revenue should show this amount of expenditure as a deduction, in the computation of income and then, only disallow the same under Section 14(A) of the Act. This would result in 'nil' addition. 9. If the Revenue is of the opinion that the assessee has wrongly capitalized the interest expenditure, it should b....
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....le income. If there is expenditure directly or indirectly incurred in relation to exempt income, the same cannot be claimed against the income which is taxable as it is held by the Honourable Supreme Court in case of Commissioner of Income-tax v. Walfort Share and Stock Brokers P. Ltd. reported in 326 ITR 1 that for attracting the provisions of section 14 A, there should be proximate cause for disallowance which as relationship with the tax exempt income. 5.1. The expenditure incurred in relation to the income which does not form part of total income has to be disallowed. However, it should be proximate relationship between the expenditure and the income, which does not form part of total income. Once such proximity relationships exis....
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....t given any finding that any of the expenditure incurred and claimed by the assessee is attributable for earning the exempt income. In other words when the assessing officer has not pointed out that certain expenditure is not incurred for earning the professional income: but are incurred in relation to dividend income or such expenditure is incurred for inseparable and indivisible activities comprising professional as well as the activities on which is exempt income has been earned by the assessee, then in the absence of any such instance of expenditure, finding of Assessing Officer or any material to show that the expenditure incurred and claimed by the assessee against the taxable income has any relation for earning the exempt income, ....
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....fore the introduction of sub-section (2) & (3) of section 14A there is no question of disallowing the amounts invoking Rule8D, Therefore, the ClT(A)'s direction on this is set aside and the additions so made by the AO, in the computation of business income is deleted, Ground is considered allowed." 5.4 Similarly in case of Auchtel Products Ltd (supra) it was held by this Tribunal in para 15 as under: "15. A bare perusal of the above provisions indicates that the AO shall determine the amount disallowable as per Rule 8D if he "is not satisfied with the correctness of the claim of the assessee" in respect of such expenditure in relation to exempt income. Even if the assessee claims that no expenditure was incurred in respect of exempt i....
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....re is no need to compute disallowance as per Rule 80. It is only when the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income that the mandate of Rule 8D will operate. In the instant case the authorities below have directly gone to the second stage of computing disallowance u/s. 14A as per Rule 8D without rendering any opinion on the correctness or otherwise of the assessee's claim in this regard. We therefore set aside the impugned order on this issue and restore the matter to the file of AO to rEUR;-compute disallowance, if any, in accordance with our above observations after duly examining the assessee's claim in this r....