TaxTMI 
TaxTMI 
2018 (6) TMI 449
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....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 the case, the order u/s 143(3) dt 25.02.2015 by the Asst. Co....
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....he 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 in terms of Rule 8D only from 24th March 2008. There was a further amendment to Rule 8D with effect from 2nd June 2016....
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....) 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 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 quest ion of tax....
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....t 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 income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or e....