TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 797
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....ance under Section 14A could be made without any satisfaction that the appellant had incurred expenditure in relation to the income not includable in the total income? 4.Whether under the facts and circumstances of the case, the disallowance under Section 14A could exceed the income not includable in the total income? 5.Whether based on materials available before the Income Tax Appellate Tribunal, the tribunal could have concluded that the expenditure incurred by the appellant is in relation to income not includable in total income? 6.Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in not following the order of the coordinate bench in the appellant's case on the same issue for the earlier year?" 2.Both the learned counsel submitted that the issues raised in the present appeal filed by the Assessee is covered by a recent Division Bench judgment of this Court to which one of us [Dr.Vineet Kothari, J.] is a Party in the case of M/S. MARG LIMITED VS. COMMISSIONER OF INCOME TAX, CHENNAI [TCA NOS.41 TO 43 OF 2017 DECIDED ON 30.09.2020]. The Division Bench of this Court in the aforesaid judgment has held as under: "13. The pr....
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.... cannot go beyond the roof limit of Section 14A itself under any circumstances. The Courts have time and again reiterated this correct, reasonable and clear position of law. But, merely to somehow make more disallowance and impose tax on the hypothetical income of the Assessee, in contrast to the concept of "real income" to be taxed as per Section 5 of the Income Tax Act, the authorities under the Income Tax Act keep on adopting such absurd procedures. The disallowance to this extent, if it was to have its way, will constitute a hypothetical 'income' taxable in the hands of the Assessee, which could never be the intention of Section 14A of the Act, providing for a proportionate disallowance of expenditure incurred to earn the exempted income. 15. The expenditure incurred to earn any income has to be always below the extent of income itself and bear a reasonable proportion thereto, as the commercial prudence does not permit any one to spend more and earn less. The investment in shares of which dividend is earned and dividend being exempted income, the expenditure incurred for earning such dividend in the form of interest on the borrowed funds, which are employed to buy suc....
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....ncome, which is exempt from tax and if at all the Assessing Authority is not satisfied with that declaration of the assessee, after recording such reasonable and cogent satisfaction only, he can resort to the computation method under Rule 8D of the Rules and compute such disallowance with a caveat that under no circumstances, the disallowance can exceed the amount of dividend income earned, received or accrued to the Assessee in the present year, which was taxable but for the exemption as per the provisions of the Act. If no dividend income is declared by the investee company or subsidiary company as the case may be, the disallowance computed under Rule 8D cannot be taxed as a "hypothetical income" of the Assessee, by providing a negative figure beyond the dividend income earned during that year, to be added to the taxable income of the Assessee. That will make the mockery of the concept of "real income" of the Assessee being taxed and it is the bedrock of the Income Tax Act itself. 18. The computation of disallowance made by the Assessing Authority and upheld by the Tribunal, as given in paragraph 6 of its impugned order, are quoted below for ready reference: "6. We have heard....
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....which is not even the fact situation of the legal jurisprudence. 4.We have perused the order of the Assessing Authority. The relevant extract of the same is quoted below: "2. Disallowance u/s.14A:- The assessee accounted an amount of Rs. 1,21,166/- as dividend during the year and claimed the same as exempt u/s 10(34). As per the provisions of section 14A of the Income Tax Act, 1961, no deduction shall be allowed in respect of expenditure incurred in relation to such income which does not form part of the total income. The assessee was asked to clarify as to why the disallowance shall not be made u/s.14A. The assessee has made submissions that no expenditure has been made for earning the said divided income. The contention of the assessee is not acceptable for the following reasons: i.It is logical to conclude that a portion of the routine expenditure to maintain its establishment and administration can be attributable towards the activity of making investments to earn dividend. Further, it is a fact that the managerial staff and the Directors are involved in making decisions on investments. Hence, a portion of this managerial remuneration and Directors remuneration definitel....