TaxTMI 
TaxTMI 
2022 (3) TMI 25
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....& conveyance expenses. The disallowance is unjustified, unwarranted and uncalled for. 3. The assessee reserves the right to add, amend or alter any grounds of appeal at any time of hearing." 2. Succinctly stated, the assessee company had e-filed its return of income for A.Y 2012-13 on 26.09.2012, declaring its total income at Rs. 2,80,47,160/-. The case of the assessee was thereafter selected for scrutiny assessment u/s. 143(2) of the Act. During the assessment proceedings, it was observed by the Assessing Officer that the assessee had claimed to have invested an amounting of Rs. 1,50,10,109/- towards purchase of shares of various companies. Backed by the aforesaid fact, the Assessing Officer called upon the assessee to explain as to why the expenditure incurred for earning of the exempt income may not be disallowed u/s.14A of the Act. In reply, the assessee tried to impress upon the A.O that no disallowance u/s.14A was called for in its hands. However, the Assessing Officer was not persuaded to subscribe to the claim of the assessee. Observing that as per CBDT Circular No.14 of 2001, dated 11.01.2014, irrespective of the fact that as to whether or not the assessee had earned ....
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....ew of the aforesaid concession of the Ld. learned Authorized Representative for the assessee the Ground of appeal No.2 is dismissed as not pressed. 5. Before us, it is the claim of the Ld. AR that the CIT (Appeals) had erred in upholding the disallowance of Rs. 9,64,389/- made by the A.O u/s.14A r.w Rule 8D of the Income-tax Rules, 1962. Elaborating on his aforesaid contention, it was claimed by the Ld. AR that as the investments made by the assessee company in the exempt income yielding shares could justifiably be traced to the sufficient self-owned/interest free funds available with it, therefore, no part of the interest expenditure was liable to disallowed u/s.14A r.w.r.8D (2)(ii) of the Income Tax Rules, 1962. In order to buttress his aforesaid claim of availability of sufficient selfowned/ interest free funds with the assessee company, the Ld. AR has drawn our attention to the 'balance sheet' of the assessee company at Page 1 of the Assessee's Paper Book (APB). Also our attention was drawn towards the investment in the exempt income yielding shares of Rs. 1.50 crore that was made by the assessee during the year under consideration. Backed by the aforesaid facts, it was submit....
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....ents that have been pressed into service by the ld. A.R in support of his contentions. Admittedly, the assessee during the year under consideration was holding exempt income yielding shares of Rs. 1,50,10,109/-. As the assessee had failed to suo-motto offer any disallowance u/s.14A of the Act, therefore, the Assessing Officer had triggered the mechanism contemplated in Rule 8D of the Income Tax Rules, 1962 and had determined the disallowance u/s 14A at Rs. 9,64,389/-. As regards the claim of the Ld. AR that as the assessee company during the year under consideration had sufficient selfowned/ interest free funds which would justifiably suffice to explain the investments in the exempt income yielding shares, therefore, no disallowance of any part of interest expenditure was called for in its hands, we find substantial force in the same. On a perusal of the financial statements of the assessee company, we find that as on 31.03.2012, it had self-owned/interest free funds aggregating to Rs. 23,78,16,054/- available with it, viz. (i) share capital: Rs. 9,00,00,000/-; and (ii) Reserves and surplus: Rs. 14,78,16,054/-. As against the aforesaid interest-free funds of Rs. 23,78,16,054/-; the....
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....stingly is relied by both sides' counsel. Writing for the Bench, Justice Dr. A.K. Sikri noted the objective for incorporation of Section 14A in the Act in the following words: - "3............. The purpose behind Section 14-A of the Act, by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such an income........" The following was written explaining the scope of Section 14-A(1): "41. In the first instance, it needs to be recognised that as per Section 14-A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee "in relation to income which does not form part of the total income under this Act". Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection wi....
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....t was done by the assessee. The following is relevant for the purpose of this judgment: 51. ...................It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect.............." 24. Another important judgment dealing with Section 14A disallowance which merits consideration is Godrej and Boyce Manufacturing Company Ltd. V. DCIT. Here the assessee had access to adequate interest free funds to make investments and the issue pertained to disallowance of expenditure incurred to earn dividend income, which was not forming part of total income of the Assessee. Justice Ranjan Gogoi writing the opinion on behalf of the Division Bench observed that for disallowance of expenditure incurred in earning an income, it is a condition precedent that such income should not be includible in total income of assessee. This Court accordingly concluded that for attracting provisions of Section 14A, the proof of fact regarding such expenditure being incurred for earning exempt income is necessary. The relevant portion of Justice Gogoi's judgm....
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.... above conclusion is reached because nexus has not been established between expenditure disallowed and earning of exempt income. The respondents as earlier noted, have failed to substantiate their argument that assessee was required to maintain separate accounts. Their reliance on Honda Siel (Supra) to project such an obligation on the assessee, is already negated. The learned counsel for the revenue has failed to refer to any statutory provision which obligate the assessee to maintain separate accounts which might justify proportionate disallowance. 29. In the above context, the following saying of Adam Smith in his seminal work - The Wealth of Nations may aptly be quoted: "The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor and to every other person." Echoing what was said by the 18th century economist, it needs to be observed here that in taxation regime, there is no room for presumption and nothing can be taken to be implied. The tax an individual or a corporate is required to pay, is a matter of planning for a tax paye....