TaxTMI 
TaxTMI 
2017 (10) TMI 1095
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....e no such investment. 3. On the facts and circumstances of the case Ld. CIT (A)/ACIT has erred both in law and facts in making a disallowance u/s 14A, on the basis of an assumption that suo moto disallowance of all direct and indirect expenditure relating to exempt Income, by assessee itself is incorrect. 4. Without prejudice to above on the facts and circumstances of the case Ld. CIT (A)/ACIT has erred both in law and facts in taking average value of all investments in the Books of assessee instead of one investment, of Rs. 1,04,19,272/- on which the assessee has earned exempt Income. 5. Without prejudice to above on the facts and circumstances of the case Ld. CIT (A)/ACIT has erred both in law and facts in making disallowance under Rule 8D amounting to Rs. 14,01,058/- which has exceeded the exempt income of Rs. 6,62,660/-. 6. The Appellant craves leave to add, alter or amend the grounds as may be advised from time to time. 2. Briefly stated facts of the case are that the assessee was engaged in the business of manufacturing and export of frozen foodstuff. The assessee filed return of income on 30/09/2010, declaring total income of Rs. 12,30,....
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....o invest in mutual funds for which board resolution in this regard would have been passed. Further to maintain, switching in and out of funds or their redemption, decision and necessary formalities would be required. For all these activities, the assessee must have used resources entailing some expenditure. Therefore, it is inconceivable that no expenses on earning exempt income have been incurred by the assessee. Therefore, I am satisfied that assessee has incurred expenses in earning exempt income which needs to be disallowed u/s 14A r.w rule 8D. ii) That the provisions of Section 14A (1) are substantive in nature. As per the provisions, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income under the Act. iii) That the provisions of sub sections (2) & (3) of Section 14A are procedural in nature which provide for computation of disallowance. These provisions seek to achieve the objectives of substantive provision contained in sub section (1) of Section 14A. iv) That the various courts have held that the expenses connected with the exempt income have to be disallowed....
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....iz., whether the ITAT was justified in deleting the disallowance under Section 14A of the Act when no dividend income had been earned by the Assessee in the relevant AY? The Court referred to the decision of this Court in Maxopp Investment Ltd. (supra) and to the decision of the Special Bench of the ITAT in this very case i.e. Cheminvest Ltd. v. CIT (2009) 317 ITR 86. The Court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl. (decision dated 2nd April 2014 of the High Court of Punjab and Haryana in ITA No. 970/2008) which in turn referred to two earlier decisions of the same in CIT v. Hero Cycles Limited [2010] 323 ITR 518 and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204. The second was of the Gujarat High Court in Commissioner of Income Tax-I v. Corrtech Energy (P) Ltd. [2014] 223 Taxmann 130 (Guj.) and the third of the Allahabad High Court in Commissioner of Income Tax, Kanpur v. Shivam Motors (P) Ltd. (decision dated 5th May 2014 in ITA No. 88/2014). These three decisions reiterated the position that when an Asses....
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....d by the Assessee is not in doubt, the question framed is required to be answered in favour of the Assessee and against the Revenue. 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 Act deduction is allowed in respect of any expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. The Supreme Court explained that the expression "incurred for making or earning such income‟, did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: "What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure tha....