TaxTMI 
TaxTMI 
2015 (9) TMI 126
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....me, an explanation from the assessee was sought. Reply of the assessee read as under : "We have not used the borrowed funds to invest in shares. All our borrowed funds were used for the purposes of the business. The equity shores mid mutual fund units were purchased out of the internal accruals of the Company. You may observe that the total net worth of the Company as on 31st March 2011 is Rs. 2468 lakhs and there as the total investment in mutual funds and shares as on 315t March 2011 15 Rs. 666.96 lakhs. Thus it is quite evident that we have used the own funds for investment in shares. Further all the expenses incurred by tlze Company as deuuled III schedule 11 to 17 of the profit and loss account, were incurred in the ordinary course of business. No portion of the same is attributable to earning of dividend. Normally we received hardly few number of dividend warrants and it takes hardly any time to encash. Therefore we need not incur any expenses to encash the dividends, for the reason that the dividend warrants are encashable at par. Accordingly we are of the opinion that there are no disallowance u/s 14A and therefore the question of applying the cal....
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.....2009 reflected investments in shares / mutual funds at Rs. 4,36,23,215 (out of which Rs. 34,49,660 pertain to this year), on which it had earned dividend income of Rs. 1,10,74,523 which was exempt under section 10(34) of the Act. The Assessing Officer observed that the assessee had not shown any expenditure as having been expended towards earning this exempt income. When called upon to explain this position and as to why disallowance under section 14A of the Act should not be made in its case, the assessee argued that it does not have any direct or indirect expenditure attributable to the earning of the exempt dividend income. The Assessing Officer following the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. V DCIT reported in 328 ITR 81, proceeded to invoke the provisions of Rule 8D of IT Rules, 1962 and compute the disallowance under section 14A r.w. Rule 8D as under : 1. Amount of expenses directly related to income which do not form part of total income NIL. 2. Amount of expenses not directly related to particular income Rs.21,80,167. 3. 0.5% of average value of investment in shares Rs.2,07,034. Total disallowance....
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....me Tax Appeal No. 626 of 2010 in the case of Godrej & Boyce Mfg.Co.Ltd. Mumbai. Vs. Dy. Commissioner of Income Tax, Range 10(2), Mumbai & Anr. 328 ITR 81 (Bom) held as follows: "Insertion of Subsections (2) and (3) to Section 14A : 25. Subsections (2) and (3) of Section 14A were inserted by an amendment brought about by the Finance Act of 2006 with effect from 1 April 2007. Subsections (2) and (3) provide as follows: "14A(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such Income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of subsection (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing containe....
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.... incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub section (3) of Section 14A provides for the application of sub section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an Assessment Year beginning on or before 1 April 2001 either to reassess under Section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under Section 154. 26. The circumstances in which the provisions of sub sections (2) and (3) were introduced by an amendment have been adverted to in a circular of the CBDT dated 28 December 2006. (Circular 14 of 2006) The circular notes that in the existing provisions of Section 14A no method for computi....
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....he assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent. of the average of the value of investment, 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." 5.3.5 In this appeal, the dispute in respect of the disallowance under section 14A r.w. Rule 8D is with regard to expenditure under Rule 8D(2)(ii) i.e. expenditure which is not directly attributable to any particular income or receipt and Rule 8D(2)(iii) i.e. other indirect expenditure than that referred to in Rule 8D(2)(i) and 8D(2)(ii). It is seen from the facts on record that the assessee has not deducted any expenses direct or indirect, while computing its income from dividend income which is exempt under section 10(34) of the Act. In this regard on a similar issue, a co-ordinate bench of this Tribunal in the case of Jindal Aluminium Ltd. in ITA Nos. 799 & 864/Bang/2012 dt.30.4.2012 c....