9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (11) TMI 447 - AT - Income TaxAddition u/s 14A r.w.r. 8D - nexus of certain expenses incurred by the assessee with the earning of the exempt income - Held that - In the case of the present assessee the A.O had carried out the disallowance under Sec. 14A, in terms of the methodology provided in Rule 8D(2)(iii), only on the basis of a general observation that a plausible nexus of certain expenses incurred by the assessee with the earning of the exempt income could not be ruled out. We are of the considered view that the aforesaid general observation of the A.O can by no means partake the color and character as that of a satisfaction, which as per the mandate of law is required to be arrived at by him with regard to the correctness of the claim of the assessee in respect of the expenses claimed to have been incurred in respect of income which did not form part of the total income of the assessee, having regard to the accounts of the assessee, as were placed before the A.O. We thus being of the considered view that as the A.O had summarily carried out the disallowance contemplated under Sec. 14A, as per the methodology provided in Rule 8D(2)(iii), without satisfying the statutory requirement of first arriving at a satisfaction as required by the mandate of law, having regard to the accounts of the assessee as placed before him, therefore, we are unable to persuade ourselves to uphold the disallowance of ₹ 10,00,000/- which had been sustained by the CIT(A). The order of the CIT(A) sustaining the disallowance of ₹ 10,0,000/- under Sec. 14A is thus set aside. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Application of Rule 8D for computing disallowance. 3. Compliance with Tribunal's directions and judicial precedents. 4. Proximate relationship between expenditure and exempt income. 5. Validity of disallowance for shares held as stock-in-trade. Detailed Analysis: 1. Disallowance under Section 14A: The assessee challenged the disallowance of ?10,00,000/- upheld by the CIT(A) against the original disallowance of ?10,03,105/- made by the A.O. under Section 14A of the Income Tax Act, 1961. The Tribunal had earlier remitted the issue back to the A.O. with specific directions to rework the disallowance in light of the principles laid down by the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. and the ITAT's decision in Yatish Trading Co. (P) Ltd. 2. Application of Rule 8D: The A.O., while re-adjudicating the matter, sustained the addition made under Section 14A by applying Rule 8D, which was contrary to the Tribunal's directions. The CIT(A) also upheld the disallowance but reduced the amount to ?10,00,000/-. The assessee argued that the A.O. had failed to identify the actual expenditure incurred for earning the exempt income and had instead made an arbitrary disallowance based on estimates. 3. Compliance with Tribunal's Directions and Judicial Precedents: The Tribunal noted that neither the A.O. nor the CIT(A) had followed its specific directions or the judicial precedents laid down by the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. and the ITAT in Yatish Trading Co. (P) Ltd. The A.O. had not established a proximate relationship between the disallowed expenditure and the exempt income, as required by law. 4. Proximate Relationship Between Expenditure and Exempt Income: The Tribunal emphasized that a disallowance under Section 14A presupposes the existence of a proximate relationship between the expenditure and the earning of tax-free income. The A.O. had failed to disprove the assessee's claim that only ?72,116/- was incurred for earning the exempt income. The A.O. had instead made an arbitrary disallowance based on a general presumption without identifying any specific expenses related to the exempt income. 5. Validity of Disallowance for Shares Held as Stock-in-Trade: The Tribunal referred to the Bombay High Court's decision in CIT Vs. India Advantage Securities Ltd., which held that no disallowance under Section 14A could be made for dividend income earned on shares held as stock-in-trade. Consequently, the Tribunal vacated the disallowance made by the A.O. for shares held as stock-in-trade. Conclusion: The Tribunal concluded that the A.O. had not satisfied the statutory requirement of establishing a proximate relationship between the disallowed expenditure and the exempt income. The disallowance made under Section 14A, based on Rule 8D, without proper justification, was not sustainable. The Tribunal set aside the CIT(A)'s order sustaining the disallowance of ?10,00,000/- and allowed the appeal of the assessee. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the open court on 25/09/2017.
|
