TaxTMI 
TaxTMI 
2017 (9) TMI 577
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....f Income Tax, Appeal is not correct either on facts or in law and in both. 2. The learned Commissioner of Income Tax, Appeal is not justified in confirming the addition of Rs. 4,53,521/- made u/s. 14A of the I.T Act. 3. The learned Commissioner of Income Tax, failed to appreciate the fact that since the investment in share application money is not capable of earning any tax free income, the provisions of disallowance u/s. 14A are not applicable to the facts of the case. 4. The appellant craves leave to add amend or alter any of the grounds at the time of hearing of the appeal". 2. Briefly, facts of the case are that the appellant is an individual, engaged in execution of civil contracts. The return of income for the AY. 2012-13 ....
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.... We have heard the rival submissions and perused the material on record. The issue in the present appeal is whether the provisions of Section 14A of the Act can be applied even in the absence of exempt income. This issue is no longer res integra as the several High Courts have held that for the purpose of invoking the provisions of Section 14A, it is sine qua non that there should be an exempt income. The Hon'ble Delhi High Court in the case of Principal CIT Vs. IL & FS Energy Development Company Ltd., [84 taxmann.com 186] (Delhi] after referring to its earlier decision in the case of Cheminvest Ltd., Vs. CIT [378 ITR 33] (Del) held as follows: "12. Section 14A of the Act, which was inserted with retrospective effect from 1st April 1....
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.... extent they are relatable to the earned income of taxable income". The object behind Section 14A was to provide that "no deduction shall be made in respect 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 A Y in question from investments made, not in that A Y, but earlier A Y s. 16. Rule 8D (1) of the Rules is helpful, to some extent....
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....rily be included in a particular year's income for the disallowance to be triggered. 19. In the considered view of the Court, this will be a truncated reading 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....
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....d by Mr. Hossain that, in the context of Section 57(iii), the Supreme Court in Commissioner Of Income Tax, West v. Rajendra Prasad Moody {1978] 115 ITR 519 (SC) explained that deduction is allowable even where income was not actually earned in the A Y in question. This aspect of the matter was dealt with by this Court in Mis Cheminvest Ltd (supra) where it reversed the decision of the Special Bench of the IT AT 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 ....
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.... There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction 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 ACITv. Ratan Housing Development Ltd (supra) and Relaxo Footwear Ltd v. Addl. CIT (su....