9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (12) TMI 995 - AT - Income TaxDisallowance u/s 14A Held that - Following Godrej and Boyce Mfg. Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT - The Assessing Officer has to examine the accounts of the assessee first - If he is not satisfied with the correctness of the claim, then only he can invoke rule 8D - No such examination was made or satisfaction was recorded by the Assessing Officer - The Assessing Officer has not considered the claim of the assessee at all and he has straightway embarked upon computing disallowance under rule 8D - The disallowance under section 14A required finding of incurring of expenditure. The assessee has offered most of the income under the tonnage tax scheme - the disallowance need not be made on entire expenditure made as the assessee s income from shipping related activity was assessed under section 115VA on presumptive basis Following Varun Shipping Co. Ltd. v. Addl. CIT 2011 (11) TMI 370 - ITAT MUMBAI - When the income of the assessee from the business of operating ships is computed as per the special provisions contained in Chapter XII-G, only the expenses incurred by the assessee for earning income of the said business are deemed to be allowed and nothing else - The income of the assessee from the business of operating ships having been computed in accordance with the provisions of Chapter XII-G, only the expenses incurred for the said business are deemed to have been allowed and no addition to such income can be made by way of disallowance under section 14A on account of any expenditure incurred in relation to earning of exempt dividend income Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Applicability of Rule 8D for computing disallowance under Section 14A. 3. Examination of the assessee's claim regarding expenditure incurred for earning exempt income. 4. Impact of the tonnage tax scheme under Section 115VA on disallowance under Section 14A. Detailed Analysis: 1. Disallowance under Section 14A of the Income-tax Act, 1961: The primary issue in this appeal is the disallowance amounting to Rs. 4,40,138 under Section 14A. The assessee disclosed dividend income of Rs. 1,12,84,713 and claimed exemption under Section 10(34). The Assessing Officer (AO) directed the assessee to submit the working for disallowance under Section 14A. The assessee claimed no direct expenditure was incurred for earning the exempt income, but the AO disallowed Rs. 4,40,138 based on a percentage of average investment. 2. Applicability of Rule 8D for computing disallowance under Section 14A: The AO applied Rule 8D to compute the disallowance, which was upheld by the Commissioner of Income-tax (Appeals). The Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. v. Dy. CIT upheld the constitutional validity of Section 14A and Rule 8D, emphasizing that the AO must record satisfaction with the correctness of the assessee's claim before invoking Rule 8D. The Delhi High Court in Maxopp Investment Ltd. v. CIT reiterated that the AO must be dissatisfied with the assessee's claim to apply Rule 8D. 3. Examination of the assessee's claim regarding expenditure incurred for earning exempt income: The Tribunal emphasized that the AO must examine the assessee's accounts and record dissatisfaction with the claim before applying Rule 8D. In this case, the AO did not record any dissatisfaction or examine the claim that no expenditure was incurred for earning the exempt income. Various judgments, including CIT v. Hero Cycles Ltd. and Justice Sam P Bharucha v. Addl. CIT, highlighted the necessity of a proximate relationship between the expenditure and the exempt income for disallowance under Section 14A. 4. Impact of the tonnage tax scheme under Section 115VA on disallowance under Section 14A: The assessee's income from shipping operations was assessed under the tonnage tax scheme, which computes income on a presumptive basis. The Tribunal in Varun Shipping Co. Ltd. v. Addl. CIT held that when income is computed under the tonnage tax scheme, only expenses related to the shipping business are allowed, and no separate disallowance under Section 14A is warranted for expenses related to exempt income. The Tribunal concluded that since the assessee did not incur any direct expenditure for earning the exempt income and the AO did not record any dissatisfaction, the invocation of Rule 8D was not justified. Conclusion: The Tribunal allowed the appeal, holding that no disallowance under Section 14A was warranted as the assessee did not incur any direct expenditure for earning exempt income, and the AO failed to record dissatisfaction with the assessee's claim. The application of Rule 8D was deemed inappropriate in this case, especially considering the assessee's income was primarily under the tonnage tax scheme. The order was pronounced in the open court on March 15, 2013.
|
