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2015 (7) TMI 741 - HC - Income TaxDisallowance u/s 14A r.w.r. 8D - Held that - Relying on the decisions in Maxopp Investments Limited v. Commissioner of Income Tax 2011 (11) TMI 267 - Delhi High Court and Auchtel Products Limited v. ACIT (2012 (5) TMI 108 - ITAT MUMBAI) the ITAT came to the conclusion that it was incumbent on the AO to have recorded that he is not satisfied with the correctness of the claim of the Assessee in respect of such expenditure which did not part of the income. It was held that in order to disallow the expenditure under Section 14A there must be a live nexus between expenditure incurred and income not forming part of total income. Consequently the ITAT came to the conclusion that the disallowance made by the AO was not justified. Learned counsel for the Appellant has sought to rely on the Circular No. 5 of 2014 dated 11th February 2014 whereby the CBDT issued a clarification that for invoking disallowance under Section 14A of the Act it is not material that the Assessee should have earned such exempted income during the financial year under consideration. She candidly admitted that the said circular was not placed before the ITAT in the appeal filed by the Revenue. The Court is not prepared to permit the Appellant to urge a ground that was not raised before the ITAT. - Decided in favour of assessee.
Issues:
1. Disallowance under Section 14A of the Income Tax Act. 2. Appeal against the order of the Commissioner of Income Tax (Appeals). 3. Interpretation of the live nexus between expenditure and income for disallowance. 4. Reliance on Circular No. 5 of 2014 for invoking disallowance under Section 14A. 5. Consideration of substantial question of law for determination. Analysis: 1. The appeal in question was against the addition of a specific amount by the Assessing Officer under Section 14A of the Income Tax Act, along with Rule 8(D)(ii) of the Income Tax Rules. The Commissioner of Income Tax (Appeals) had deleted the addition, stating that no disallowance could be made if the investment was made out of interest-free funds. However, a partial disallowance was confirmed under Section 14A read with Rule 8D(iii) of the Income Tax Rules. 2. Both the Revenue and the Assessee filed appeals against the order of the Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal (ITAT) allowed the Assessee's appeal and dismissed the Revenue's appeal. The ITAT emphasized the necessity for the Assessing Officer to be dissatisfied with the Assessee's claim regarding expenditure not forming part of the total income for disallowance under Section 14A. The ITAT concluded that the disallowance made by the Assessing Officer was not justified, citing the requirement of a live nexus between the expenditure incurred and the income not forming part of the total income. 3. The Appellant sought to rely on Circular No. 5 of 2014, which clarified the conditions for invoking disallowance under Section 14A of the Act. The Circular stated that it was not necessary for the Assessee to have earned exempted income during the financial year under consideration. However, the Appellant failed to present this circular before the ITAT during the appeal. The Court declined to entertain a ground that was not raised before the ITAT. 4. After considering the submissions and examining the impugned order of the ITAT, the Court found no substantial question of law requiring determination in the present case. Consequently, the appeal was dismissed. This judgment delves into the intricacies of disallowance under Section 14A of the Income Tax Act, emphasizing the importance of a live nexus between expenditure and income for such disallowance. It also highlights the significance of presenting all relevant documents and arguments before the appropriate authorities during appeals to ensure a fair hearing and consideration of all aspects of the case.
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