TaxTMI 
TaxTMI 
2026 (1) TMI 1381
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....ted for scrutiny. An assessment under Section 143(3) of the IT Act was completed vide order dated 29 November 2017, assessing the total income at Rs. 3,06,382/- under the normal provisions of the IT Act and after making disallowance/ additions under Section 14A of the IT Act. The Assessment Order observed that the assessee had incurred finance cost of Rs. 11,77,47,043/- by way of interest on loans. It was also noticed that the assessee had made investments of Rs. 277,01,28,320/-. In the assessment proceedings for Assessment Year 2014-15, it was noticed that its own funds were not available with the assessee as also there were negative reserves. It was observed to be evident that the assessee had utilized borrowed funds in making investments in shares/units and claimed the interest paid on borrowed funds as business expenditure. The Assessing Officer taking into consideration Circular No.14 of 2001 dated 22 November 2001 and Circular No. 8 of 2002 dated 27 August 2002 which explained that no expenses relatable to an income exempt from tax would be allowed as a deduction. The Assessing Officer also opined that Circular no.5 of 2014 dated 11 February 2014 would become applicable, whic....
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....as placed on the decision of the Supreme Court in Maxopp Investment Ltd. Vs. Commissioner of Income Tax, New Delhi [2018] 91 taxmann.com 154 (SC) wherein the Supreme Court, held that if expenditure was incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. It was observed that in certain cases where the shares were held as stock-in-trade and the main purpose was to trade in those shares and earn profits therefrom, in the process, certain dividend is also earned, although incidentally, which also is an income. The CIT(A) observed that this triggered applicability of Section 14A which was based on a theory of apportionment of expenditure between taxable and non-taxable income, and therefore, to that extent expenditure incurred in acquiring those shares will have to be apportioned. The CIT(A) observed that as the ratio in the decision in Maxopp Investments Ltd. (supra), was a case where disallowance under Section 14A cannot exceed the exempt income, which was the situation in the assessee's case, no exempt income was at all earned, hence, there could be no di....
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....tention as urged on behalf of the Revenue, for more than one reason, so as to interfere with the concurrent orders passed by the CIT(A) and of the tribunal. At the outset we may observe that the CIT(A) taking into consideration the provisions of Section 14A has observed that the assessee's case would stand covered by the decision of the Supreme Court in Maxopp Investment Ltd. (supra), as in the present case the disallowance under Section 14A also cannot exceed the exempt income, as no exempt income was earned by the assessee. It was hence observed that there cannot be disallowance under Section 14A, consequently the entire disallowance made under Section 14A was required to be deleted. Accordingly, the tribunal considering all the contentions as urged by the revenue and relying on the decision of the Supreme Court in Maxopp Investment Ltd. (supra) dismissed the appeal filed by the Revenue, observing that once there was no exempt income, the issue would stand squarely covered by the said decision of the Supreme Court. 8. The Supreme Court in Maxopp Investment Ltd. (supra), considering the provisions of Section 14A (1) of the IT Act has held that the deduction of that expenditure ....
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....come does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. xxx xxx xxx The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A." (emphasis supplied) 9. Also referring to the decision of the High Court of Punjab And Haryana in Principal Commissioner of Income Tax Vs. State Bank of Patialia (supra) in Maxopp Investment Ltd. (supra) paragraph 40 and 41 the Supreme Court has made the following observations: "40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a cor....