2019 (6) TMI 440 - HC - Income Tax

Disallowance u/s 14A - Tribunal restricting the disallowance to the extent of expenses claimed - disallowance u/r 8D was made of ₹ 2.19 Crores against total expenditure of ₹ 24.19 - voluntarily disallowance by assessee of ₹ 7.79 Lakhs - HELD THAT - Sub-section (2) of Section 14 of the Act provides that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-rule (1) of Rule 8D also makes similar provision provides that where the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of expenditure made by the assessee or that the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income, the Assessing Officer would determine the amount of expenditure in terms of sub-rule (2). For applicability of sub-rule (2) of Rule 8D, the requirements of sub-rule (1) would have to be satisfied. Only then, the formula provided in the unamended clause would apply. In the present case, as noted, the assessee s entire claim of expenditure in relation to its business activities was ₹ 24.19 Lakhs out of which, the assessee had voluntarily reduced sum of ₹ 7.79 Lakhs in relation to income not forming part of the total income. The Tribunal accepted such working out. Quite apart the correctness of the approach of the Tribunal, accepting stand of the Assessing Officer would lead to disallowance of expenditure far in excess of what is claimed by the assessee itself. No question of law arises.

Summary

Issues involved:
1. Interpretation of Rule 8D of the Income Tax Rules regarding disallowance of expenses.
2. Application of sub-rules (1) and (2) of Rule 8D in determining expenditure.
3. Assessment of expenditure claimed by the assessee in relation to business activities.

Detailed analysis:
1. The judgment dealt with the interpretation of Rule 8D of the Income Tax Rules concerning the disallowance of expenses. The primary issue was whether the Tribunal was justified in restricting the disallowance to the extent of expenses claimed by the assessee, even though no such restriction is prescribed under Rule 8D. The Revenue challenged the Tribunal's decision in this regard.

2. The judgment discussed the application of sub-rules (1) and (2) of Rule 8D in determining the amount of expenditure incurred in relation to income not forming part of the total income. Sub-section (2) of Section 14 of the Act and Rule 8D provide the framework for the Assessing Officer to determine the correct amount of expenditure if unsatisfied with the assessee's claim. The Tribunal accepted the assessee's working out of expenditure, which led to the Revenue's appeal.

3. The assessment of expenditure claimed by the assessee in relation to its business activities was a crucial aspect of the case. The assessee had voluntarily reduced a portion of the claimed expenditure, and the Tribunal accepted this reduction. The judgment highlighted that accepting the Revenue's argument would result in a disallowance of expenditure exceeding what the assessee had claimed, emphasizing the fairness and accuracy of the assessment process.

In conclusion, the High Court dismissed the Income Tax Appeals, stating that no question of law arose from the issues discussed in the judgment. The detailed analysis provided a comprehensive understanding of the legal interpretation and application of Rule 8D in determining the disallowance of expenses for the assessee's business activities.