TaxTMI 
TaxTMI 
2024 (7) TMI 1814
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....ied and correct in remanding the issue of disallowance under Section 14A of the Income Tax Act, 1961 to the Assessing Officer. ITA 735/2019 (i) Whether the Income Tax Appellate Tribunal [in short, "ITAT"] was right in holding that the sales tax subsidy received by the appellant/assessee was a revenue receipt, and not capital receipt, hence, liable to tax? (ii) Whether the ITAT was justified and correct in remanding the issue concerning disallowance under Section 14A of the Income Tax Act, 1961 to the Assessing Officer? 3. Undisputedly, insofar as the issue with regard to sales tax subsidy is concerned, the same stands answered in favour of the appellant in terms of a judgment rendered inter partes on 07 December 2017 in ITA 171/2012. We deem it apposite to extract the following from the aforesaid decision: "2. While admitting this appeal on 14th May 2013, the following question of law were framed for consideration: (1) Whether on the facts and in circumstances of case, the ITAT was correct in law in deleting the addition/disallowance to the extent of Rs. 2,08,59,280/- on custom duty on import of components for exports purpose? ....
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...." 4. That only leaves us to examine the questions emanating from Section 14A of the Income Tax Act, 1961 [Act], read along with Rule 8D of the Income Tax Rules, 1962 [Rules]. From a perusal of the assessment order which forms part of the record of ITA 696/2018, we note that the Assessing Officer [AO] has while examining the aforesaid question observed as follows: "D) Disallowance on account of provisions of section 14A (1) During the year under consideration the assessee company has received dividend income of Rs. 166,83,50,967/- and claimed exemption u/s 10(34) and 10(35) of I.T. Act, 1961. The assessee company was provided an opportunity to explain the reasons as to why the disallowance u/s 14A be not made against the exempt income. (2) In response thereof, the assessee company vide reply dated 20.09.2011 has again emphasized on the non-applicability of section 14A & rule 8D (I.T. Rule, 1962) like in earlier years of I.T. Act, 1961. The assessee has submitted that: a) The investments were made out of internal resources. Therefore, no expenditure was incurred in relation to investments. b) Similar disallowance by Assessing Officers i....
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....ective heads, would call for disallowance in view of the specific provision of section 14A. Since the provisions of section 14A are specific in nature and deal with the disallowance of expenditure in relation to exempt income, such expenses cannot be allowed as deduction if these relate to exempt income notwithstanding the fact that there are separate provisions for allowing such deduction. The issue of applicability of Rule 8D as well as the apportionment of direct and indirect expenditure towards taxable and exempt income has been dealt by Hon'ble Members of ITAT, Mumbai recently in the case of M/s. Daga Capital Management Pvt. Ltd. and others Income Tax Act No.8057/Mum/2003 & others and it is held by the Hon'ble Bench that Rule 8D is applicable retrospectively and it is mandatory to be adopted by the Assessing Officer as well as by the assessee. In this case the assessee has earned dividend income of Rs.720 million as exempt income. However, he has shown an investment of Rs. 20,512 million. In case of Cheminvest Ltd. Vs. ITO (2009) 317 ITR (AT) 86 (Delhi Spl. Bench). the Hon'ble Bench has held that - "interest expenditure incurred by the as....
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.... 8D (2) hinges on the recording of the AO in terms of Rule 8D (1) that he was not satisfied with the Assessee's claim regarding expenditure incurred to earn the exempt income. 34. The Assessee had explained that Rs. 3 lakhs was being disallowed voluntarily as an "expenditure which could be attributable for earning the said income." The Assessee explained that the disallowance had been determined on the basis of cost of finance department in the ratio of exempt income to total turnover. On that basis the disallowance in AY 2005-06 was upheld by CIT (A) at Rs. 1 lakh. The disallowance for this AY was worked out as Rs. 1,42,404/- and since the Assessee had already made a disallowance of Rs. 3 Lacs, no further disallowance was called for. 35. In order to disallow this expense the AO had to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee's claim of Rs. 3 lakhs being the administrative expenses. This was mandatorily necessitated by Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules. 36. In para 3.2 of the assessment order, the AO records that, in answer to the query posed by the AO ....