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2018 (11) TMI 877 - HC - Income TaxAddition u/s 14A - Held that - As decided in GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VERSUS DY. COMMISSIONER OF INCOME-TAX & ANR 2017 (5) TMI 403 - SUPREME COURT OF INDIA expenses allowed can only be in respect of earning of taxable income. Therefore, one needs to read the words expenditure incurred in Section 14A in the context of the scheme of the Act and, if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the total income for the purpose of chargeability to tax. No mention of the reasons which had prevailed upon the AO, while dealing with the Assessment Year 2002-2003, to hold that the claims of the Assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances - Decided in favour of assessee.
Issues:
- Whether the Tribunal was legally justified in deleting the addition made under section 14A read with Rule 8D following Circular 5/2014? - Whether the Tribunal was legally justified in not considering the judgment of the Hon'ble Supreme Court in the case of Godrej and Boyce Ltd. regarding the interpretation of Section 14A read with Rule 8D? Analysis: 1. The appellant challenged the tribunal's decision dismissing the department's appeal. The appellant raised two substantial questions of law regarding the deletion of the addition made under section 14A read with Rule 8D and the consideration of the Supreme Court judgment in the case of Godrej and Boyce Ltd. 2. The appellant referred to the Supreme Court judgment in Godrej and Boyce Manufacturing Company Limited vs. Dy. Commissioner of Income Tax, emphasizing the legislative intent behind Section 14A to disallow expenses incurred in earning exempted income. The Court clarified that expenses related to earning exempt income must be disallowed, even if no exempt income was earned during the financial year. 3. The appellant also cited the CBDT circular of 2014, which clarified the legislative intent behind Section 14A. The circular emphasized disallowing expenses related to earning exempt income, irrespective of whether such income was earned during the financial year under consideration. 4. The Assessing Officer relied on the provisions of Section 14A and Circular No. 5/2014 to disallow the expenses incurred by the assessee. The AO calculated the disallowance under Rule 8D of the Income-Tax Rules, 1962, based on the formula prescribed, adding it to the total income of the assessee. 5. The appellant argued that the Supreme Court's observations in the Godrej and Boyce case supported disallowing expenses related to earning exempt income. The Court had previously ruled in favor of the assessee on this issue, indicating that no substantial question of law arose in this appeal. 6. Considering the Supreme Court's interpretation and the previous ruling in favor of the assessee, the Court concluded that Section 14A applies to dividend income on which tax is payable under Section 115-O of the Act. Therefore, the appeal was dismissed as no substantial question of law was found to arise.
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