AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (9) TMI 471
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....missioner of income tax (Appeals) of Rs. 108194/- under section 14A of the income tax act. 3. In the present case assessee, individual filed his return of income on 29/09/2012 showing income of Rs. 53142920/- which were subsequently revised on 24/10/2012. During the year under consideration, the Ld. assessing officer has noted that the assessee is shown exempt income of Rs. 1145710/- under section 10 of the Income Tax Act, 1961. Therefore, the Ld. AO passed assessee as to why expenses should not be disallowed following the provisions of section 14 A of the income tax act read with rule 8D of the income tax rules. Assessee submitted reply on 15/11/2011 claiming that no expenditure was incurred to earn exempt income. The Ld. assessing office....
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....w the explanation of the assessee is incorrect applied the provisions of Rule 8D of the income tax act, 1961, and working out disallowance under section 14 A of the income tax act of Rs. 108194/-. Hon'ble Delhi High Court in 84 Taxmann.com in Pr. CIT Vs. I& L Energy limited as held as under:- "11. At the outset, it requires to be noticed that we are concerned with the AY 2011-12 and, therefore, the question of the applicability of Rule 8D, which was inserted with effect from 24th March 2008, is not in doubt. 12. Section 14A of the Act, which was inserted with retrospective effect from 1st April 1962, provides for disallowance of the expenditure incurred in relation to income exempted from tax. From 11th May 2001, a proviso was inserted i....
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....spect of any expenditure incurred by the Assessee in relation to income which does not form part of the total income under the Income Tax Act". 15. What is taxable under Section 5 of the Act is the "total income" which is neither notional nor speculative. It has to be 'real income'. The subsequent amendment to Section 14A does not particularly clarify whether the disallowance of the expenditure would apply even where no exempt income is earned in the AY in question from investments made, not in that AY, but earlier AYs. 16. Rule 8D (1) of the Rules is helpful, to some extent, in understanding the above issue. It reads as under: "8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous ye....
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....of Section 14 A and Rule 8D particularly when Rule 8D (1) uses the expression 'such previous year'. Further, it does not account for the concept of 'real income'. It does not note that under Section 5 of the Act, the question of taxation of 'notional income' does not arise. As explained in Commissioner of Income Tax v. Walfort Share and Stock Brokers Pvt. Ltd [2010] 326 ITR 1 (SC), the mandate of Section 14A of the Act is to curb the practice of claiming deduction of expenses incurred in relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Consequently, th....
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....ined that deduction is allowable even where income was not actually earned in the AY in question. This aspect of the matter was dealt with by this Court in M/s Cheminvest Ltd. (supra) where it reversed the decision of the Special Bench of the ITAT by observing as under: "20. Since the Special Bench has relied upon the decision of the Supreme Court in Rajendra Prasad Moody (supra), it is considered necessary to discuss the true purport of the said decision. It is noticed to begin with that the issue before the Supreme Court in the said case was whether the expenditure under Section 57 (iii) of the Act could be allowed as a deduction against dividend income assessable under the head "income from other sources". Under Section 57 (iii) of the....
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....ction under Section 57(iii) of the Act, where the expression used is "for the purpose of making or earning such income." Section 14A of the Act on the other hand contains the expression "in relation to income which does not form part of the total income." The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act." 23. The decisions of the ITAT in ACIT v. Ratan Housing Development Ltd. (supra) and Relaxo Footwear Ltd. v. Addl. CIT (supra), to the extent that they are inconsistent with what has been held hereinbefore do not merit acceptance. Further, the mere fact that in the audit report for the AY ....