TaxTMI 
TaxTMI 
2024 (6) TMI 796
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....e Act while computing total income under normal provisions of the Act and (b) addition of the amount of disallowance u/s 14A of the Act while computing book profit under section 115JB of the Act. 2. We heard the parties and perused the record. The fact is that the assessee did not earn any exempt income during the year under consideration. Hence the assessee did not make any disallowance u/s 14A of the Act. The Assessing Officer noticed that the assessee has held investment in shares to the tune of Rs. 30.75 crores. Accordingly, he took the view that the disallowance u/s 14A should be made. Accordingly, he computed the disallowance under section 14A read with rule 8D of the I.T. Rules at Rs.15,38,295/- and added the same to the ....
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.... 9.1. The legislature, in order to do away with the pernicious practice adopted by the Assessees', to claim expenditure, against income exempt from tax, introduced the said provision. 10. In the instant case, there is no dispute that no income i.e., dividend, which did not form part of total income of the Assessee was earned in the relevant assessment year. 10.1. Therefore, to our minds, the addition made by the Assessing Officer by relying upon Section 14 A of the Act, was completely contrary to the provisions of the said Section. 10.2. Mr.Senthil Kumar, who appears for the Revenue, submitted that the Revenue could disallow the expenditure even in such a circumstance by taking recourse to Rule 8D. ....
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....l income. 12.1. The Division Bench went on to hold that Section 4 of the Act brings to tax, that income, which is relatable to the assessment year in issue. The Division Bench, thus, held that where no exempt income is earned in the previous year, relevant to the assessment year in issue, provisions of Section 14 A of the Act, read with Rule 8 D could not be invoked. 12.2. While coming to this conclusion, the Division Bench also took note of the aforementioned Circular, issued by the Board. 12.3 .The reasoning of the Division Bench is contained in the following part of the judgment: "4. The admitted position is that no exempt income has been earned by the assessee in the financial year relevant to the ass....
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....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 C....
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....sed on the fact that Rule 8D had not kicked-in by AY 2007-08, which was the AY being considered in the said case. 14. According to us, this was not the argument, put forth, before the Division Bench. As a matter of fact, the Revenue relied heavily on Rule 8D. 14.1. Mr.Ravikumar, who appeared for the Revenue, in that matter and who is present in this Court, informs us that he had in fact argued that the Rule was clarificatory in nature and would apply retrospectively, and that, the Division Bench, therefore, discussed the impact of Rule 8D of the Rules. 15. However, it is, our view, as indicated above, independent of the reasoning given in M/s. Redington (India) Limited case that Rule 8D cannot be read in a manner,....