TaxTMI 
TaxTMI 
2015 (11) TMI 1548
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....Section 14A and Rule 8D by concluding that Rule 8D provides for allocation of expenditure relatable to exempt income and that such expenditure is to be disallowed even when there is actually no exempt income during the previous year." 3. The facts and circumstances in both the years are similar. Therefore, we are discussing the facts for assessment year 2008-09. A search and seizure action u/s 132 of the Income Tax Act, 1961 (hereinafter 'the Act') was carried out in M/s. Diamond Hut Group of cases on 27.10.2009. The case of the assessee was also covered in operation u/s 132 of the Act and accordingly, notice u/s 153A was issued on 13.04.2010. In response to the notice, the assessee had filed return of income, declaring a total Income of Rs. 23,01,940/- on 07.09.2010. The AO issued notice u/s 143(2) on 14.09.2010 and subsequently another notice u/s 143(2) was issued on 12.07.2011. Thereafter, a detailed questionnaire u/s 142(1) was issued on 12.08.2011. In response to the same, the AR for the assessee attended the proceedings from time to time and filed necessary details / clarifications. 3.1 During the course of assessment proceedings, the AO observed that the assessee had inves....
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....directly relating to income which does not form part total income A NIL 2 Expenditure on Interest B 81,13,085 3 The average of value of investment income from which does not or shall not form part of the total income [(Rs.Nil + Rs. 3,35,00,000) / 2] C 1,67,50,000 4 The average of total asset appearing in the balance sheet of the assessee [(Rs.2,47,24,108/- + Rs. 8,89,27,895/-) / 2] D 5,68,26,002 5 B X C/D 23,91,408 6 ½ % of the average of the value of investment, income from which does not or shall not form part of the total income. E 83,750 TOTAL (Sl.No.5 + Sl.No.6) 24,75,158 Thus, the AO completed the assessment u/s 153A read with section 143 (3) of the Act by adding the addition made on account of disallowance u/s 14A read with Rule 8D of Rs. 24,75,158/- in the income declared by the assessee of Rs. 23,01,940/-. Accordingly, the total income recomputed by the AO came to Rs. 47,77,098/- in assessment year 2008-09. (Total income as declared in ITR Rs. 23,01,940/- + disallowance made by the AO Rs. 24,75,158/- = Rs. 47,77,098/-). For assessment year 2009-10, the total income recomputed by the AO is Rs. 78,43,899/- (Total income ....
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....rom a bare perusal of the section it is clear that before making the disallowance the following conditions are to exist as noted by co-ordinate Bench in M/s Kee Pharma Ltd. ITA NO 5108/Del/2012: (i) There must be income taxable under the Act; (ii) The said income must not form part of the total income under the Act; (iii) There must be an expenditure incurred by the assessee; and (iv) The said expenditure must have a relation to the income which does not form part of the total income under the Act. It was further observed by the Tribunal that from the aforesaid condition it would be clear that in the concerned assessment year as there is no income which does not form part of the taxable income under the Act i.e. dividend from the shares, in our opinion, the provisions of section 14A of the Act cannot be invoked. In the present case, it is an admitted fact that the assessee was not in receipt of any dividend income as such there was no income from the investment in question which was taxable under the Act, therefore, the AO wrongly invoked the provisions of section 14A of the Act. On a similar issue, their lordships of the Hon'ble Punjab High Court in the case of CIT Vs M/s....
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....ntire income of the assessee is taxable under the Act. Section 14A is applicable only when any part of the income is not to be included in the total income of the assessee and the expenditure relating to that part of income is claimed by the assessee as deduction. In such cases only, the expenditure relating to the exempted income can be disallowed and not otherwise. Since in the present case, the entire income is found to be taxable, no disallowance can be made under section 14A of the Act.' 10. Moreover, the AO has not established the nexus between invested funds and the interest bearing funds, since the investments in shares are in the years 1995-96, 1998-99 and 1999-2000 and the interest disallowance is for the assessment years 2000-01 and 2001-02. On the contrary perusal of the balance sheet for the year ending 31.3.1995, 31.3.1998 and 31.3.1999, it is clear that interest bearing funds have not been utilized for investment for purchase of shares. 11. For the aforesaid reasons, we see no reason to interfere with the order of CIT(A) concerning assessment year 2000-01 and 2001-02 and hence the decision of CIT (A) in deleting the disallowance of interest by invoking section 14....
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....ttedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application." Similarly, the Hon'ble Jurisdictional High Court in the case of CIT Vs Holcim India (P) Ltd. in ITA Nos. 486 & 299/2014 vide order dated 05.09.2014 dismissed the appeal of the revenue and observed in para 14 as under: "14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on 02.04.2014 , made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I V....