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TMI Blog2012 (10) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... From the assessment order it is observed that the AO simply kept the assessee's submissions on record without appreciating as to whether these were correct or not. He proceeded on the premise as if the disallowance as per Rule D is automatic irrespective of the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income. It is an incorrect course adopted by the AO - as the disallowance cannot exceed the total actual expenditure incurred and claimed by the assessee the total expenditure claimed by the assessee in the Profit and Loss account is Rs.45,977/- thus the disallowance should be restricted to this amount - partly in favour of assessee. - ITA No: 4294/Del/2012 - - - Dated:- 19-10-2012 - SHRI J.SUDHAKAR REDDY, AND SHRI RAJPAL YADAV, JJ. Appellant by : Shri Suresh Anantharaman, C.A. Respondent by : Shri SK Jain, Sr. D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals) dated 17.7.2012 for the Assessment Year 2009-10. 2. Facts in brief:- The assessee is a Private Limited Company. It filed its return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g its income. Under the circumstances, making a disallowance under Section 14A is bad in law. We do not understand how an expenditure can be disallowed, when the same has not been claimed as a deduction. 8. If the Department s argument that the assessee should have claimed the expense is accepted, then the Revenue should show this amount of expenditure as a deduction, in the computation of income and then, only disallow the same under Section 14(A) of the Act. This would result in nil addition. 9. If the Revenue is of the opinion that the assessee has wrongly capitalized the interest expenditure, it should be looked into and examined when the assessee declares capital gains/loss on the transaction. Looking at the issue from any angle, we have to allow this ground of the assessee and delete the disallowance of interest expenditure. 10. Coming to the second issue, we find that the assessee has claimed that it had incurred total expenditure of Rs.45,977/- during the year. While so the Assessing Officer has disclosed Rs.6,51,918/-. Thus the disallowance is for in excess of the actual expenditure in this case. 11. The Mumbai J Bench of the Tribunal in the case of Justice Sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made under section 14A merely because some tax exempt income is received by the assessee. 5.2 Averting to the facts of the case in hand, the assessee had made a claim that no expenditure has been incurred or claimed for earning the exempt income. From the details of the expenditure it is clear that the expenditure incurred and claimed by the assessee has direct nexus with the professional income of the assessee. It is not the case of the revenue that the assessee has used his official machinery and Establishment for earning the exempt income. The Assessing Officer has not given any finding that any of the expenditure incurred and claimed by the assessee is attributable for earning the exempt income. In other words when the assessing officer has not pointed out that certain expenditure is not incurred for earning the professional income: but are incurred in relation to dividend income or such expenditure is incurred for inseparable and indivisible activities comprising professional as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee" in respect of such expenditure in relation to exempt income. Even if the assessee claims that no expenditure was incurred in respect of exempt income the AO is supposed to follow the mandate of Rule 8D if he is not satisfied with the correctness of the assessee's claim. To put it simply, the further disallowance u/s. 14A is called for when the AO is not satisfied with the assessee's claim of having incurred no expenditure or some amount of expenditure in relation to exempt income. Satisfaction of the AO as to the incorrect claim made by the assessee in this regard is sine qua non for invoking the applicability of Rule 8D, Such satisfaction can be reached and recorded only when the claim of the assessee is verified. If the assessee proves before the AO that it incurred a particular expenditure in respect of earning the exempt income and the AO gets satisfied then there is no requirement to still proceed with the computation of amount disallowable as per Rule 80. From the assessment order it is observed that the AO simply kept the assessee's submissions on record without appreciating as to whether these were correct or not. He proceeded on the premise as if the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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