TaxTMI 
TaxTMI 
2013 (8) TMI 999
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.... Section 14A read with Rule 8D of Income Tax Rules, 1962 (in short 'the Rules') and computed disallowance/addition of Rs. 2,58,66,515/-. It is also evident to us that the Assessing Officer had calculated an amount of Rs. 1,71,75,315/- under Rule 8D(2)(ii) and that of Rs. 86,91,200/- under Rule 8D(2)(iii). The said amount was added in the assessee's total income. He had made other additions as well under section 40(a)(ia) of the Act. Since they are not subject matter of the instant appeal, we do not take notice of the same. 3. Aggrieved, the assessee preferred appeal. Therein, the CIT(A) has also confirmed the addition by agreeing with the findings of the Assessing Officer as under:- 4.3 Ground No. 3: This ground of appeal is directed against the action of the AO in disallowing an amount of Rs. 2,58,66,515/- under section 14A of the Act as expenses incurred for earning the exempt dividend income. The appellant has relied on various decisions and predominantly on the recent decision of the Kolkata Tribunal in the case of ACIT Vs. Champion Commercial Co. Ltd. ITA No.644/Kol/2012 on the application or rule 8D for disallowance under section 14A for the Assessment year 200....
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....ia in the case of Commissioner of Income tax, Mumbai v. Walfort Share & Stock Brokers (P.) Ltd. (supra) explained the reason for the insertion of Section 14A thus: "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 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 partly to the taxable income. In the absence of Section 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of Section 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of ....
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....or clerk". In view of the above, I do not find any infirmity in the action of the AO in applying provisions of section 14A of the Act read with rule 8D in working out the expenditure attributable to earning of exempt income and the same is confirmed. No evidence or material, whatsoever, has been brought on record to show that the entire interest expenditure claimed by the appellant was incurred to earn taxable income. Therefore the proportionate disallowance as mandated under section 14A read with Rule 8D, out of the interest expenditure that has not been shown to have been incurred for earning taxable income alone is also upheld. This ground of appeal, therefore, is dismissed. Therefore, the assessee is in appeal. 4. Before us, the contention of the assessee is that the CIT(A) has wrongly confirmed the addition in question made by the Assessing Officer of Rs. 2,58,66,515/-(supra). To buttress its submissions, the assessee strongly relies upon on the case low of ITAT Kolkata in ITA No.1331/Kol./2011 , REI AGRO Ltd. Kolkata Vs, DCIT, Kolkata to contend that there is no evidence available to the effect it had either incurred any expenditure or utilized borrowed amounts in earni....
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....y the AO and consequently, in view of the decision of the Coordinate bench of this Tribunal in the case of Balarampur Chini Mills Ltd. referred to supra, no disallowance under section 14A can be made. 7. Now coming to the merits of the issue. A perusal of the provision of section 14A(1) clearly shows the wordings, "in relation to the income which does not form part of the total income under this Act". In the present case, this income, which does not form part of the total income under the Act, is the dividend income of Rs. 1,32,638/-. Therefore, if any disallowance is to be made in respect of expenditure incurred, it should be in relation to this dividend income of Rs. 1,32,638/-. If an assessee has invested in shares, which could get dividend or there is investment which generates dividend income or exempt income as also investment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with rule 8D. A perusal of the provisions of rule 8D also talks of satisfaction in sub-rule (1). Rule 8D(2) has three sub-parts. Th....
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....A) is liable to be confirmed and we do so. 7.1 In any case, the working of the disallowance under sub-part (ii) of subclause (2) of rule 8D as made by the AO also suffers from a substantial error in so far as in the said rule in regard to the numerator B, the words used are the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balancesheet as on the first day and in the last day of the previous year. Here the AO has taken into consideration the investment of Rs. 103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. This is why the question of satisfaction is provided in section 14A and rule 8D(1), that relates to the accounts of the assessee. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be con....