TaxTMI 
TaxTMI 
2020 (8) TMI 706
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....nt order, the Assessing Officer has noted that as seen from the details filed during the assessment proceedings for the year under consideration the assessee has shown an amount of Rs. 1,92,05,932/- towards investment in shares. The income from shares is dividend income which is exempt from tax under section 10(38) of the Act. The assessee company claimed interest income of Rs. 105,54,37,287/- During the course of assessment proceedings, the AR was asked to explain as to why disallowance u/sec. 14A r.w.r. 8D should not be made in the case of the assessee company. In response, the assessee's AR vide its letter filed in this office dated 11/03/2015 furnished a note on applicability of section 14A r.w.r. 8D which is not convincing for the reason that the above investments would yield income from dividends which is exempt from tax and further the CBDT has issued Circular No. 05/2014 dated 11/02/2014 in which it has clarified the disallowance of expenditure u/sec. 14A in cases where corresponding exempt income is not earned during the financial year for the assessee. Accordingly, the Assessing Officer worked out disallowance of Rs. 6,99,345/-. 4. On appeal, ld. CIT(A) by following th....
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....he plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure." 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 and accordingly held that; expression "does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the sa....
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....rb the practice of claiming deduction of expenses incurred in relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11th May 2014, the decision of this Court in Cheminvest Ltd. (supra) requires reconsideration. 20. In M/s. Redington (India) Ltd. v. The Additional Commissioner of Income Tax, Company Range-V, Chennai (order dated 23rd December, 2016 of the High Court of Madras in TCA No. 520 of 2016), a similar contention of the Revenue was negated. The Court there declined to apply the CBDT Circular by explaining that Section 14A is "clearly relatable to the earning of the actual income and not notional income or anticipated income." It was further explained that, "The computation of total income in terms of Rule 8D is by way of a determination involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificial method of computation on notional....
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.... made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure." 21. 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 ACIT v. Ratan Housing Development Ltd. (supra) and Relaxo Footwear Ltd. v. Addl. CIT (supra), to the extent that they are inconsistent with what has been held hereinbefore do not merit acceptance. ....
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....; and not 'of the year' and a disallowance under s.14A r.w.Rule 8D can thus be effected even in a situation where a tax payer has not earned any taxable income in a particular year. 9.We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in Commissioner of Income Tax Vs. Maharashtra Sugar Mills Limited (1971) (82 ITR 452) and Rajasthan State Ware Housing Corporation Vs. Commissioner of Income Tax ((2002) 242 ITR 450) in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s.14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. As observed by the Supreme Court in the judgment in the case of Commissioner of Income Tax vs. Walfort Share and Stock Brokers (P) Ltd (2010)326ITR 1 '.... The mandate of s.14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt inc....
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....asons, we are of the view, that no interference is called for qua the impugned judgment. 16.To our minds, questions of law, which could have arisen are already covered by the judgment of a Co-ordinate Bench of this Court rendered in M/s.Redington (India) Limited case. (supra)" Recently, the Hon'ble Supreme Court (95 taxmann.com 250) dismissed the SLP filed against the decision of the High Court wherein it was held that section 14A of Act cannot be invoked where no exempt income was earned in the relevant year. The relevant head note is as under:- Section 14A, of the Income-tax Act, 1961, read with rule 8D of the Income-Tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (General principle) - Assessment year 2011-12 - High Court by impugned order held that section 14A can only be triggered, if, assessee seeks to square off expenditure against income which does not form part of total income under Act; rule 8D only provides for a method to determine amount of expenditure incurred in relation to income, which does not form part of total income of assessee and it cannot go beyond what is provided in section 14A - It further held that ....
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.... taken by the coordinate bench of the tribunal in the case of D. Veerabhadra Reddy (HUF) vs. DCIT in ITA No. 263/VIZ/2014, by order dated 23/06/2017 for the Assessment Year 200910, wherein the Tribunal has held that no disallowance can be made when there is expenses incurred in relation to exempt income. The relevant portion of the order is extracted as under:- "6. We have heard the rival submissions and perused the material on record. The assessee has rental income from godowns and the business loss. The assessing officer has completed the assessment u/s 143(3) by order dated 04.11.2011. The Ld. CIT has called for the record u/s.263 and issued the notice for revision for incorrect set off of business loss against the rental income. After verification of the material on record, the Ld. CIT has dropped the issue with regard to incorrect set off of business loss against the income from property which was examined by the assessing officer. During the course of revision proceedings, it has come to the notice of Ld.CIT that the assessee has made investments in shares and bonds, and did not make disallowance which was required to be made u/s 14A of IT Act. The assessee explained....