TaxTMI 
TaxTMI 
2014 (6) TMI 777
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....allowed all those expenses which are not related to business activities or attributable to exempt income. (c) That learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that assessee company has claimed only those expenses which are necessary to run the company as separate legal entity or which are directly related to business activities such as salary, rent, audit fee, interest etc. and therefore erred in making addition of Rs.52,56,197 u/s 14A of the Income Tax Act 1961 and assessing the business loss at Nil as against declared loss of Rs.52,56,197/-." 3. At the time of hearing before us, the learned counsel for the assessee argued at length and claimed that before invoking the provisions of Section 14A(2), the Assessing Officer was required to record that he is not satisfied with the correctness of the claim of the assessee that Rs.2,97,440/- only have been incurred for earning exempt income. Since no such satisfaction is available in the assessment order, the Assessing Officer could not have invoked Section 14A(2) and consequentially, Rule 8D which is linked to Section 14A is not attracted in the case of the appellant. In suppor....
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....-tax Rules, 1962 as mandatory. Though at the time of hearing before us no specific arguments were advanced against this ground of appeal, therefore, technically, this ground is deemed to have been not pressed by the learned counsel for the assessee. Even otherwise, we are of the opinion that Rule 8D is mandatory. It would be evident from a plain reading of Section 14A(2). Section 14A(2) provides that the Assessing Officer shall determine the amount of expenditure incurred in relation to exempt income in accordance with such method as may be prescribed. The legislature has prescribed Rule 8D with effect from 24th March, 2008 as the method for determination of amount of expenditure incurred in relation to exempt income. By using the word "shall" in sub-section (2) of Section 14A, the legislature has made it mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to exempt income as per the prescribed method. Before the insertion of Rule 8D, the Assessing Officer had the discretion to determine such expenditure on a reasonable and acceptable method of apportionment of expenditure between the taxable income and exempt income. But, when the legisl....
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....im of expenditure made by the assessee is not correct. In this connection we draw your kind attention to computation of income. From the perusal of said statement your goodself will observe that the assessee company has disallowed all those expenses which are of disallowable by nature. Total expenditure including loss on sale of investment as per profit & loss is amounting to Rs.13,13,47,713/-. Assessee company itself has voluntarily added back a sum of Rs.12,16,59,778/- as disallowable, while computing the business income. Only those expenses which are directly related to earn the business income and also to keep the separate legal entity of the company to perform its activities have been claimed. Further, your kind attention is also drawn to the fact that the total interest income debited to profit & loss account is Rs.41,36,661/- whereas interest income from Bank and corporate deposits comes to Rs.44,31,429/-. Therefore, it could not be said that any interest expenditure has been incurred to earn the exempt income. Also Reserves and Surplus of the company are sufficient to make the invest....
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....amount of Rs.99,45,325/- is to be disallowed. However, the total loss under the head business is declared as Rs.52,56,197/-. Thus, the disallowance is restricted to the loss of Rs.52,56,197/-." 9. From the above, it is evident that the Assessing Officer noted that the assessee has received substantial exempt income and, therefore, the disallowance under Section 14A read with Rule 8D is called for. The Assessing Officer issued show cause notice to the assessee in this regard. The assessee furnished the reply. Thereafter, the Assessing Officer considered the assessee's reply and found that the disallowance proposed by the assessee was only Rs.2,97,440/- which included the expenditure which is directly related to the earning of exempt income which was only one part of the disallowance to be made as per Rule 8D. The assessee had not considered the other part of Rule 8D and, therefore, the Assessing Officer had worked out the disallowance as per Rule 8D. In view of the above, we are unable to accept the assessee's contention that the Assessing Officer failed to record the satisfaction as envisaged by Section 14A(2). On the other hand, we find that as per Rule 8D(1), the disallowance ....
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....r. The assessee's counsel has contended that the various expenses, viz., filing fees, house tax, conveyance, insurance of building and cars, electricity, building repair, printing & stationery, telephone expenses, audit fees, office rent, vehicles expenses, depreciation etc. were not incurred for earning of exempt income. From the working of the disallowance by the Assessing Officer which is already reproduced earlier in our order, it would be evident that all those expenses have not been considered by the Assessing Officer. In Part (i), the Assessing Officer has considered Rs.2,97,440/- which assessee himself has admitted as a direct expenditure incurred for earning exempt income, viz., securities transaction tax, depository charges and custodian fees. In Part (ii), only the interest has been considered and in Part (iii), half per cent of average investment has been considered. Therefore, these expenses which assessee claimed to have been not incurred for earning of exempt income have not been considered by the Assessing Officer at all. The assessee has also disputed the correctness of the disallowance of interest at Rs.34,08,582/-. However, we find that the disallowance as per Pa....