AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 449
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the assessee is holding investments to the tune of Rs. 101,35,62,908/- as on 01/04/2011 and 31/03/2012 and the assessee has not earned exempt incomes like dividend from the said investments. It has paid application monies to the tune of Rs. 115,05,58,000/- as on 01/04/2011 and 31/03/2011 and equity shares were not allotted for the said sums. Relying on various case, which were extracted at page 4 and 5 of CIT(A)'s order, the assessee submitted that there was no dividend income earned and it has not incurred any interest expense in relation to the investments. It only incurred administration expenses which can in no way linked with the investments. Therefore, no disallowance u/s 14A can be made in its case. Further, it was submitted that disallowance u/s 14A cannot be more than the total expenditure incurred by the assessee even if the quantum as calculated as per rule 8D(2)(iii) exceeds the actual expenditure. 5. The CIT(A) after considering the submissions of the assessee, confirmed the addition made by the AO. 6. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: 1. In the facts and circumstances of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve 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 1962, provides for disallowance of the expenditure incurred in relation to income exempted from tax. From 11 th May 2001, a proviso was inserted in Section 14A to clarify that it could not be used to reopen or rectify a completed assessment. Sub-sections (2) and (3) of Section 14A were inserted with effect from 1st April, 2007 to provide for methodology for computing of disallowance under Section 14A. However, the actual methodology was provided i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ub-rule (2)." 17. The words "in relation to income which does not form part of the total income under the Act for such previous year" in the above Rule 8D(1) indicates a correlation between the exempt income earned in the A Y and the expenditure incurred to earn it. In other words, the expenditure as claimed by the Assessee has to be in relation to the income earned in 'such previous year'. This implies that if there is no exempt income earned in the A Y in question, the question of disallowance of the expenditure incurred to earn exempt income in terms of Section 14A read with Rule 8D would not arise. 18. The CBDT Circular upon which extensive reliance is placed by Mr. Hossain does not refer to Rule 8D (1) of the Rules at all but only refers to the word "includible" occurring in the title to Rule 8D as well as the title to Section 14A. The Circular concludes that it is not necessary that exempt income should necessarily 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 expre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Section 57 (iii) of the Act could be allowed as a deduction against dividend income assessable under the head "income from other sources". Under Sect ion 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 that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of inco....