TaxTMI 
TaxTMI 
2025 (5) TMI 2043
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....ning the addition of Rs. 40,53,508/- made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules'). 3. Facts of the case, in brief, are that the assessee is a company engaged in the business of buying and selling of government securities. It also does trading in shares (F&O). It filed its return of income on 31.10.2018 declaring total loss of Rs. 5,65,783/-. The case of the assessee was selected for complete scrutiny through CASS and accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the AR of the assessee appeared before the Assessing Off....
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....n excess of the expenditure incurred in relation to the exempt income. The assessment order and the submission uploaded have been carefully examined and found that it is a fact the appellant had made huge investment in form of shares and securities and investment as capital in the partnership firms, whereas earned exempted income to the tune of Rs 2,000/- to the extent of which has been disallowed by the appellant on its own in the computation of income. It is also observed from the details uploaded that the appellant on its own has disallowed in the computation statement the expenditures to the tune of Rs. 11,65,844/-, as against the total expenditure debited to the tune of Rs. 20,27,023/-. However, in the submission made on 22/03/2024, ....
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....led on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the total exempt income received by the assessee during the year is only Rs. 2,000/-. This finding of fact was given by the Assessing Officer as well as the Ld. CIT(A) / NFAC and there is no dispute to the same. Under these circumstances, we have to see as to whether the disallowance u/s 14A read with Rule 8D can exceed the exempt income that has been earned by the assessee. 11. We find the Hon'ble Bombay High Court in the case of PCIT vs. HSBC Invest Direct (India) Ltd. (supra) following the decision of the Hon'ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 33 (Del) and in the case of CIT....
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....incurred to earn exempted income, it has to have a rational nexus with the amount of income earned itself. Disallowance under Section 14A of Rs. 2,48,85,000/- as expenses to earn exempted Dividend income of Rs. 1,80,30,965/- is per se absurd and 1 378 ITR 33 2 [2018] 256 Taxman 349 (Karnatama) URS 3 of 7 4 3-ITXA 149-17.odt hypothetical. The disallowance under Section 8D cannot exceed the expenses claimed by assessee under the Proviso to Rule 8D. Therefore, where the assessee claimed that assessee did not incur any such expenditure during the year in question to earn Dividends of Rs. 1,80,30,965/-, the burden was upon the assessing authority to compute the interest on such borrowed funds which were dedicatedly used for investment in securit....
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....e which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under : "7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd. (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns....
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....vest Ltd. and Holcim India (P) Ltd. (supra) would include a facet where the assessee's income exempt from tax is not NIL but has earned exempt income which is larger than the expenditure incurred by the assessee in order to earn such income. In such a situation that disallowance cannot exceed the exempt income so earned by the assessee during the year under consideration. We do not find any error in the view of the Tribunal. We record that the assessee had offered voluntary disallowance of expenditure of Rs. 1.30 crores, which is not been disturbed by the Tribunal. 5. The tax appeal is dismissed." 9. In view of such consistent trend of the High Courts, we answer the question in favour of the Assessee. We reverse the decision of the ....