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TMI Blog2012 (3) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... he specifics, it is mentioned in the assessment order that the assessee had made investment the income from which is not includible in the total income. Therefore, expenditure has to be disallowed u/s 14A of the Income-tax Act read with Rule 8D of the Income-tax Rules. Such disallowance was worked out at Rs. 33,337/-. Another amount of Rs. 4,84,422/- was disallowed as excess provision made in respect of quality discount. This issue, however, is not relevant for our purpose. Thus, the total income was computed at Rs. 20,33,37,944/-. 1.1 The matter regarding disallowance u/s 14A was agitated in ground no. 3 before the CIT(Appeals). It was submitted that the assessee had made investment in shares, units of mutual funds and National Saving Cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/- made by the AO has been upheld. 1.2 Aggrieved by this order, the assessee is in appeal before us. It has taken up four grounds in the appeal. It is explained to us by the ld. counsel for the assessee that the gist of the grounds is that the ld. CIT(Appeals) erred upholding the disallowance of Rs. 33,337/- on the basis of presumption that no income can be earned without incurring some expenditure. Other grounds deal with the facts or the state of law, which shall be discussed to the extent argued by the ld. counsel. 2. Before us, the ld. counsel referred to the fact that investments were old on which no income was earned in this year. It is also his case that apart from shares and units of the mutual funds, there was investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment in shares, units and NSCs. Although it is made out that the certificates have been lost and no interest thereon has been paid, there is no evidence to this effect. The assessee can very well claim the principal amount and interest on the certificates on or after the date of maturity. No income has been earned on shares and units. 3.1 The first question is-whether in absence of income which is not includible in the total income, the provision contained in section 14A can be invoked. None of the parties has cited any case before us. Therefore, the issue is to be decided on the basis of statutory language and general principles of interpretation of law. Sub-section (1) of section 14A contains a provision to the effect that for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that similar proposition will apply while interpreting the aforesaid provision contained in section 14A(1). Therefore, we are not in agreement with the ld. counsel in respect of first line of argument. 3.2 The second question is-whether, there is an assumption of expenditure as some kind of in-built expenditure or some facts must exist on record to show that the expenditure was actually incurred in relation to earning the income. In this connection, the words used in the provision "expenditure incurred by the assessee in relation to income" assume importance. In the case of DCIT Vs. Jindal Photo Ltd. in ITA No. 814(Del)/2011 for assessment year 2008-09 dated 23.09.2011, decided by 'D' bench of Delhi Tribunal, a copy of which has been plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ej & Boyce Manufacturing Co. Ltd. (supra), the decision is that prior to assessment year 2008-09, the AO can make reasonable disallowance after considering all the facts of the case. Obviously the consideration has to be in respect of expenditure incurred in relation to earning the income. 3.5 Having considered these cases, we are of the view that the AO should have considered the claim of the assessee that no expenditure has been incurred in relation to earning the exempt income. If the claim was not found to be in consonance with the facts on record, it could have been rejected and disallowance could have been made as per Rule 8D. However, we find that the AO has not considered the claim of the assessee at all and he has straightw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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