TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 1279
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....ssee had been regularly making investment in mutual funds and that the investment into equity shares were also made in the company who entered into joint venture with the assessee. According to the AO, the assessee will receive a dividend income which will be exempt in his hand. He, therefore, asked the assessee to justify as to why the disallowance u/s 14A of the I.T. Act, 1961 (in short the Act) read with Rule 8D of I.T. Rules, 1962 be not made in its case. In response, the assessee submitted as under:- "Disallowance u/s 14A read with Rule 8D: In current assessment proceedings, your goodself, assessee has neither incurred any expenses for earning the exempt income nor earned any exempt income. Since the assessee has already produce all the relevant details as and when required by you, kindly do not make the addition for the clause" 3. The AO, however, made the disallowance of Rs. 1,90,46,924/- u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the I.T. Rules, 1962 and added the same to the income of the assessee. 4. Being aggrieved, the assessee carried the matter to the learned CIT(A) and submitted as under:- "1.1 The learned Assessing Officer has erred both on fact....
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....fficer was required to record his "satisfaction" or satisfy himself that having regard to the accounts of the assessee, the claim of the assessee that no expense is disallow able u/s 14A was not correct and there could have been certain other expenditure which can be said to have been incurred in relation to the earning of exempt income. The disallowance under section 14A (1) can only be triggered, once the conditions under subsection (2) are satisfied. 1.5.2. To work out the disallowance under ride 8D, the Assessing Officer has to first examine the accounts of the assessee as to whether there is exempt income and then the correctness of the claim and then, if having regard to such accounts and the claim he is not satisfied with either the correctness of the claim made by the assessee or made a claim that no expenditure at all has been incurred for the purpose of earning the exempt income, then only he can resort to ride 8D. 1.5.3. The learned AO has given a reasoning that the assessee company will receive dividend income which is merely a hypothesis. The learned AO further in his order dated 16/01/2015 at page 2 [Refer PB 26] placed his comments on expenses incurred by the a....
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....ies were made with an intention to hold controlling stake rather than to earn any dividend income." 5. It was also stated that the purpose of investment was to obtain the controlling interest in subsidiary company rather than to earn dividend and that no exempt income was earned by the assessee during the year, therefore, the provision of Section 14A of the Act were not applicable. The reliance was placed on the following case laws:- I. ACIT vs. M Bhaskaran [2014] 50 taxmann.com 138 (Chennai) ii. CIT vs. Shivam Motors (P) Ltd. [2015] 55 taxmann.com 262 (Alld) iii. CIT vs. Lakhani Marketing Inc. [201] 49 taxmann.com 257 (P & H) iv. CIT vs. Corrtech Energy (P) Ltd. [2014] 45 taxmann.com 116 (Guj) v. CIT vs. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (P&H) vi. CIT vs. Holcim India Pvt. Ltd. (2014 ) 90 CCH 81 (Del) 6. It was also stated that no exempt income was earned by the assessee, therefore the provisions of Section 14A were not applicable. The reliance was placed on the following case laws:- i. Siva Industries and Holdings Ltd. vs. ACIT [2011] 11 taxmann.com 404 (Chennai) ii. CIT vs. Walfort Share & Stock Brokers (P) Ltd. [2010] 326 ITR 1 / 192 t....
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....mpt income earned in the form of dividend income and long term capital gain, undoubtedly management/establishment expenses and other office over heads must have been incurred to take care of income received, investments made and other allied activities involved and the bank/financial institution must also have levied its charges/fees. The A.O. placed reliance on the decision of Hon'ble High Court of Mumbai in the case of Godrej and Boyce Manufacturing Company Ltd. v. DCIT 234 CTR 1 where it was held that expenses connected with the exempt income have to be disallowed irrespective of the fact that they are direct or indirect, fixed or variable, managerial or financial, in accordance with the provisions of the law. Thus, the A.O. disallowed Rs. 1,90,46,924/- u/s 14A of the I.T. Act read with rule 8D of the I.T. Rules and added back to the total income of the appellant. 3.2.3 The appellant in the appellate proceedings submitted that the investment considered for Calculation of disallowance of expenditure on exempt income by the AO is investment made in its wholly owned subsidiary i.e., Bharti Retail Limited and in the company with whom the appellant has entered into joint ventu....
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....h the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. " 3.2.6 With the discussion of legal provisions of section 14A, the scope and applicability of section w.e.f. 1-4-2007 are as under:- * The assessee must have incurred expenditure in relation to earn income which is exempted under the Income-tax Act, 1961. * The assessee must have an exempted income which is not includible in his total income. * Prescribed formula can be applied only where the Assessing Officer is not satisfied with account o....