2014 (8) TMI 241

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....g 0.50% of the average value of such investment which is in the nature of Growth schemes not having any provision of distribution of dividends. 3. The Learned Commissioner of Income Tax (Appeals) 8 erred in considering Stock In Trade while working out disallowance under Rule 8D(2)(iii) of the Income Tax Rules. 4. The Appellant craves leave to add, alter, amend or delete any or all of the above mentioned grounds of appeal." 2. At the outset, the ld. A.R. of the assessee stated at bar that he does not press ground No.2. Hence, ground No.2 is dismissed being not pressed. Ground No.1 3. Through ground No.1 the assessee has raised the contention relating to disallowance under section 14A of Income Tax Act read with rule 8D(2)(iii) of the Income Tax Rules. It has been contended that no disallowance under Rule 8 (2) (iii) of the Income Tax Rules can be made in respect of investments/assets which yielded no exempt income during the year. It has been submitted that the assessee during the year had made investments which included some equity shares and infrastructure units on which no dividend had been received during the assessment year in question. Hence, no disallowance could have be....

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....nvestments should be arrived by considering only those investments which have yielded dividend. Though the Ld A.R placed reliance on the decision rendered by Calcutta bench of Tribunal, we are unable to accept the same in view of the clear provisions prescribed in Rule 2(ii) of Rule 8D of the Income tax Rules. For the sake of convenience, we extract below the relevant provisions:- "B the average of value of investmenty, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year". 5.7 A careful perusal of the above said provisions would show that the words "does not" or "shall not" have got their own significance, i.e., the words "does not" refer to the income which has already been received and the words "shall not" refer to the income that may be received. In our view, the words "shall not" mandates that the entire investments, the income which shall not form part of the total income are required to be considered, otherwise the words "shall not" shall loose its significance in the above said provision. Accordingly, we reject the said contentions of the assessee."....

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....incurred by the assessee in relation to income which does not form part of the total income under the Income Tax Act. The proposed amendment will take effect retrospectively from 1st April, 1962 and will accordingly, apply in relation to the assessment year 19621963 and subsequent assessment years." 8. The Hon'ble High Court has further relied upon the judgment of the Hon'ble Supreme Court in the case of "CIT vs. Walfort Share & Stock Brokers Pvt. Ltd." (2010) 326 ITR 1, wherein the Hon'ble Supreme Court has explained the reasons for the insertion of section 14A in the following words: "The insertion of Section 14A with retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001 dated 22.11.2001). In other words, Section 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to the exempt income and pa....

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....ure with income which does not form part of the total income - a disallowance has to be effected. All expenditure incurred in relation to income which does not form part of the total income under the provisions of the Act has to be disallowed under Section 14A. Income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation." (emphasis supplied) 10. A perusal of the provision of Rule 8D as discussed above and also the memorandum of explanation regarding the rationale for the insertion of Section 14A as well as the relevant observations of the Hon'ble Supreme Court in the case of "Walfort Share & Stock Brokers Pvt. Ltd." (supra) as well as of the Hon'ble Bombay High Court in the case of "Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT" (supra) needs no doubt to the effect that the disallowance under section 14A read with Rule 8D is to be made not only in respect of income which does not form part of the total income but also in respect of income which shall not form part of the total income and as observed above by the Hon'ble Supreme Court and by the Hon'ble Jurisdictional High Court of Bombay that the section 14A(1) is ena....