TaxTMI 
TaxTMI 
2025 (9) TMI 152
X X X X Extracts X X X X
X X X X Extracts X X X X
....the final date of hearing of this appeal petition." Brief Facts of the case are as under: The assessee is a private limited company, and filed its revised return of income for the year under consideration on 28/12/2022 declaring total income of rupees nil. The case was selected for scrutiny for the following reasons: i) large any other amount allowable as deduction claimed in schedule BP of return ii) addition of assets during the year in the of assets where rate of depreciation claimed as 40% or higher iii) introduction/addition of high value intangible asset during the year and claim of depreciation at full rate iv) non-compliance to income computation and disclosure standards v) last difference in the opening stock of current year (in trading and manufacturing account) and closing stock of previous year shown in P&L account as per return of income vi) claim of large value refund vii) high liabilities as compared to low income/receipts viii) expenditure debited to P&L for earning exempt income is very less in comparison to the investments made to earn exempt income. 2.1. The Ld.AO accordingly i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h Court in case of the Tin Box Co. reported in 260 ITR 637 * decision of Hon'ble Gujarat High Court in case of Gujarat Power Corp Ltd., vide order dated 28/03/2011 * decision of Hon'ble Punjab and Haryana High Court in case of Hero Cycles Ltd reported in 323 ITR 518; * The assessee had also relied on decision of this Tribunal in assessee's own case for assessment A 2006-07 and 2007-08 wherein the disallowance under section 14A was deleted relying on the decision of Hon'ble Bombay High Court in case of Reliance Utilities and Power Ltd (supra). 2.4 The Ld.AO after considering the submissions filed by the assessee found it to be not acceptable, as the investments made by the assessee was capable of generating exempt income. It was noted that, such investment decisions are very complex and need day-today management/monitoring. The Ld.AO thus rejected the contention of the assessee that, by observing as under: "4.6 Conclusion drawn The submission of the assessee has been considered carefully, but the same is found not acceptable because, the investments made by the assessee are capable of generating exempt income. Besides, such investment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance irrespective of the fact whether any such income has been earned during the financial year or not. It is pertinent to mention here that the Hon'ble Apex Court in the case of Maxopp Investment Ltd. 91 Taxmann.com. 154. held that the appellant (or) main object would not be a relevant consideration for disallowance u/s. 14A of the Act. If the expense is incurred for earning the dividend income, then such expenses which is attributable to the dividend income has to be disallowed. It is further held in para 40 of the order of the above said case, the Hon'ble Supreme Court has held that; "Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and when such dividend income is generated that would be earned by the assessee.' In view of the same, the contention of the assessee that provisions of section 14A are not applicable in its case is not acceptable. Once it is decided that the provisions of Sec.14A are applicable, the disallowance should be worked o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nance Act, 2022. The legislature has amended Section 14A to give effect to the Circular No. 05/2014 dated 11.02.2014 issued by the CBDT to overturn the observations made by various High Courts and Hon'ble Supreme Court towards impermissibility of disallowance of any expenditure in the absence of exempt incomes reported by the taxpayers. The Legislature has made two changes to Section 14A through the Finance Act, which are as follows: a Insertion of Non-obstante clause by way of substitution; and, Insertion of an Explanation- to re-enforce by way of clarification, the contents of the CBDT circular. 4 Non-obstante clause: The main objective to substitute a non-obstante clause in subsection 1 appended to section 14A which reads as follows "Notwithstanding anything to the contrary contained in this Act, for the purposes of is to overcome the observations made by the Hon'ble Madras High Court in Redington (India) Ltd. wherein, it was observed that an assessment in terms of the Act is specific to an assessment year and related previous year as per section 4 read with section 5 of the Act. And if any contrary intention would have been there it would have....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Investments in Gamma Pizzakraft (Overseas) Pvt Ltd Rs. Year to date Investments in GPOPL Rs. AY 2016-1 7 88,92,24,951 88,92,24,951 AY 201 7-1 8 73,13,842 89,65,38,793 AY 201 8-1 9 73,52,209 90,38,91,002 AY 201 9-20 8,84,38,034 99,23,29,036 AY 2020-21 57,10,83,109 1,56,34,12,145 AY 202 1-22 4,25,35,023 1,60,59,47,168 AY 2022-23 7,99,01,171 1,68,58,48,339 AY 2023-24 10,99,99,914 1,79,58,48,253 4.1 She submitted that Ld.AO relied on CBDT Circular No.5 of 2014, for disallowing the expenditure, even when the assessee for year under consideration did not earn any exempt income. The Ld.AR submitted that, on identical facts and circumstance, the issue stands squarely covered in assessee's own case by the order of this Tribunal passed for assessment year 2018-19 and 2021-22 in ITA number 5262/UM/2024 and ITA number 3746/M/2024 vide orders dated 12 number 2024 and 23/10/2024 respectively. She placed copies of the said orders on record. Reliance was also placed to support this preposition on the decision of Hon'ble Bombay High Court in case of HDFC Bank ltd., vs. DCIT reported in (2016) 67 taxmann.com 42. She al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....year under consideration being 2022-23, a disallowance has to be made even though no exempt income is earned by the assessee from the investments. The Ld. DR referring to the amended provisions of section 14A applicable to the year under consideration submitted that, being a 'notwithstanding clause', read with newly inserted explanation to the section, disallowance under section 14A becomes mandatory. The Ld. DR thus distinguished all the decisions relied by the Ld.AR based on the amended provision under section 14A that is applicable to the present year under consideration. 4.6. As regards to non-application of the mind by the Ld. AO alleged by the Ld.AR, it is the submission of the Ld. DR that, the assessing officer categorically verified the accounts of the assessee as is evident from the details that was called upon from the assessee for necessary verification during the assessment proceedings. He further submitted that even though the assessee had interest expenditure and that it was the mixed funds maintained by the assessee, no disallowance has been computed by the Ld.AO proportionately from interest expenditure. The Ld. DR thus supported the computation of the Ld.AO base....
X X X X Extracts X X X X
X X X X Extracts X X X X
....endment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." (emphasis supplied) 5.2. Thus, it is very clear that for assessment year under consideration being A.Y.2022-23, the amended provisions are applicable that reads as under: 14A. (1) [Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. ......... Explanation.-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed with the amount offered by way of disallowance by the assessee. At the same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under a mandate to apply the formulae as it were under Rule 8D because of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figure on a fair working out of the provisions, he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the methodology enacted. 8. In this instance the elaborate analysis carried out by the AO - as indeed the three important steps indicated by him in the order, shows that all these elements were present in his mind, that he did not expressly record his dissatisfaction in these circumstances, would not per se justify this Court in concluding that he was not satisfied or did not record cogent reasons for his dissatisfaction to reject....