2017 (7) TMI 427 - AT - Income Tax

Disallowance u/s.14A r.w.Rule 8D(2)(iii) - Held that - Even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. Therefore, we are unable to agree with the argument of the learned A.R. - Appeal of the assessee is dismissed.

Summary

Issues:
Disallowance of &8377; 12,22,441/- made u/s.14A r.w.Rule 8D(2)(iii) of the Act.

Analysis:

Issue: Disallowance under Rule 8D(2)(iii)

The assessee's appeal was against the disallowance of &8377; 12,22,441/- under Rule 8D(2)(iii) of the Income Tax Act. The assessee argued that no investment yielding exempted income was made in the relevant assessment year, and no expenditure was incurred to earn exempted income. The assessee contended that there was no requirement for disallowance under Rule 8D(2)(iii). The assessee relied on judgments to support the argument that there must be a direct nexus between the expenditure incurred and the income not forming part of the total income for disallowance under section 14A. The Tribunal considered the details of the expenditure claimed by the assessee and found that there was no apparent connection between the expenditure incurred and the exempt income. As the assessing officer did not establish any relationship between the expenditure claimed and the exempt income, the provisions of section 14A were deemed inapplicable.

Issue: Application of Rule 8D and Presumptive Expenditure

The Tribunal discussed the provisions of section 14A and Rule 8D, emphasizing that even if an assessee claims no expenditure was incurred, the statute provides for a presumptive expenditure to be disallowed. The Tribunal noted that the statutory presumption substitutes the need for factual evidence, and the assessing officer must apply Rule 8D in such cases. The Tribunal rejected the argument that no expenditure was incurred and upheld the disallowance under Rule 8D(2)(iii) based on the statutory presumption provided by the law.

Issue: Applicability of Previous Judgments

The assessee relied on a previous judgment of a Mumbai Tribunal related to assessment year 2008-09, which did not have Rule 8D in existence. The Tribunal held that the ratio laid down in that judgment could not be applied to the current case due to the introduction of Rule 8D. Therefore, the Tribunal dismissed the appeal of the assessee based on the application of Rule 8D and the statutory presumption of expenditure disallowance under section 14A.

In conclusion, the Tribunal upheld the disallowance under Rule 8D(2)(iii) and dismissed the appeal of the assessee, emphasizing the statutory provisions and the requirement to apply Rule 8D even in cases where no expenditure is claimed to have been incurred.