2013 (8) TMI 836 - AT - Income Tax

Disallowance u/s 14A - Expenditure incurred for earning of exempt income - Held that - It is not in dispute that the assessee has earned huge dividend income which has been claimed as exempt and for the purpose of disallowance under section 14A, it has disallowed a sum of Rs.5,46,16,385. The assessee s working of disallowance was too based on rule 8D. However, in its working, the assessee has not considered those investments which have not yielded any income. In our opinion, such a working is not correct, as once the expenditure has been incurred in relation to an income which do not form part of the total income, then the provisions of section 14A, comes into play - it has been held that disallowance under section 14A can also be made in the year in which no exempt income has been earned or received by the assessee. When the expenditure is incurred in relation to income which does not form part of the total income, it has to suffer the disallowance under section 14A, irrespective of the fact that whether or not any income has been earned by the assessee. The section itself does not carve out any such exception - Once it is not disputed that the provision of rule 8D are applicable on the conditions stated therein, then disallowance has to be made as per the formula given in rule 8D, except when the assessee brings out cogent material on record to show that a particular expenditure as provided in the formula was not attributable to earning of the exempt income - Following decision of Cheminvest Limited. Versus Income Tax Officer, Ward 3(3), New Delhi. 2009 (8) TMI 126 - ITAT DELHI-B - Decided against assessee.

Issues Involved:
1. Duplicate appeals filed by the assessee.
2. Revenue's appeal on various grounds including environmental monitoring expenses, replacement of meters, head office expenses allocation, market price of power, deduction extent under section 80IA, and applicability of section 115JB.
3. Assessee's appeal on disallowance under section 14A r/w rule 8D.

Detailed Analysis:

1. Duplicate Appeals Filed by the Assessee:
The assessee mistakenly filed two appeals containing the same grounds against the same impugned order. The appeal in ITA no.5039/Mum./2011, filed subsequently, was treated as infructuous and dismissed.

2. Revenue's Appeal on Various Grounds:

Ground 1: Environmental Monitoring and Community Development Expenses:
The Tribunal found that this issue was already dealt with in previous orders (Paras-2 to 6) and dismissed the Revenue's ground, following the earlier decision.

Ground 2: Replacement of Meters as Revenue Expenditure:
This issue was discussed in previous orders (Paras-8 to 12), where the Tribunal decided in favor of the assessee. The current issue being identical, the Tribunal dismissed the Revenue's ground.

Ground 3: Allocation of Head Office Expenses for Section 80IA Deduction:
The Tribunal referred to earlier discussions (Paras-14 to 18) and decided in favor of the assessee. The Revenue's ground was dismissed as the issue was identical to previous cases.

Ground 4: Market Price of Power for Section 80IA Deduction:
The Tribunal, after detailed discussion in previous orders (Paras-20 to 29), followed the decision for the assessment year 2006-07 and dismissed the Revenue's ground.

Ground 5: Deduction Extent under Section 80IA:
The Tribunal referred to earlier discussions (Paras-29 to 35) and dismissed the Revenue's ground, following the decision for assessment years 2001-02 to 2005-06.

Ground 6: Applicability of Section 115JB:
The Tribunal found that the issue was already decided in favor of the assessee in previous orders (Paras-37 to 40) and dismissed the Revenue's ground.

Grounds 7 and 8: General in Nature:
These grounds were treated as dismissed without separate adjudication.

3. Assessee's Appeal on Disallowance under Section 14A r/w Rule 8D:

The Assessing Officer noted that the assessee claimed dividend income as exempt under section 10 and required details of disallowance as per section 14A and rule 8D. The assessee offered a disallowance of Rs.5,46,16,385, but the Assessing Officer computed it at Rs.71,04,74,589, resulting in a net addition of Rs.65,58,58,204.

The assessee contended that investments were made from surplus funds and no specific expenditure was incurred for earning exempt income. The learned Commissioner (Appeals) rejected these contentions, confirming the disallowance made by the Assessing Officer.

The Tribunal, considering the rival contentions and relevant findings, upheld the disallowance, referencing the Special Bench decision in Cheminvest Ltd. v/s ITO, which held that disallowance under section 14A can be made even if no exempt income is earned. The Tribunal found no merit in the assessee's contentions and upheld the findings of the learned Commissioner (Appeals).

Conclusion:
Both the Revenue's appeal and the assessee's appeal were dismissed. The order was pronounced in the open Court on 19th July 2013.

← Previous Next →