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TMI Blog2014 (4) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in subsidiary companies – Relying upon GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - The assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies – thus, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the AO is not justified and is liable to be set aside – Decided in favour of Assessee. - ITA No. 4521/Mum/2012 - - - Dated:- 26-3-2014 - Shri Vijay Pal Rao And Shri Narendra Kumar Billaiya,JJ. For the Petitioner : Shri K. Shivaram and Shri Sanjay R. Parikh For the Respondent : Shri S. D. Srivastava ORDER This appeal by the assessee is directed against the order dated 11.04.2012 of CIT(A) for A.Y. 2009-10. The assessee has raised following grounds in this appeal:- 2. During the year under consideration the assessee earned dividend income of Rs. 14,14,000/- which is exempt u/s 10 (34). The assessee has disallowed a sum of Rs. 1,40,000/- u/s 14A. However the AO did not accept the disallowance made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls Ltd. Vs. ACIT dated 30.01.2014 and submitted that the Tribunal has dealt with an identical issue in these decisions and held that when the assessee has brought on record the fact to show that no expenditure has been incurred on the investment made in the subsidiary companies then the AO has to record its satisfaction for not accepting the claim of the assessee and also give the finding that expenditure has been incurred by the assessee for earning the exempt income. The Ld. AR has also relied upon the decision of Hon ble Delhi High Court, dated 15.01.2013 in the case of CIT Vs. Oriental Structural Engineers Pvt. Ltd, whereby the decision of Delhi Bench of this Tribunal has been confirmed by the Hon ble High Court. 5. On the other hand, the Ld. CIT(DR) has vehemently contended that it is immaterial whether the investment is in subsidiary companies or in unrelated companies. The disallowance of expenditure u/s 14A has to be computed as per Rule 8D of the Income Tax Rules. The AO has calculated the amount of disallowance as per Rule 8D and, therefore, there is no question of accepting the disallowance made by the assessee which is not in accordance with the formula given in Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lculation of disallowance u/s 14A. Therefore, we do not find any infirmity in the order of the CIT(A) upholding the action of the AO for disallowing the deduction u/s 14A read with rule 8D. The contention of the assessee that the AO without satisfaction being reached invoked the provisions of Rule 8D, in our opinion, does not hold good especially in absence of non-furnishing of details for the purposes of calculation of disallowance at Rs. 16.50 lakhs by the assessee on its own. In this view of the matter and in absence of any distinguishable feature brought to our notice by the learned Counsel for the assessee against the order of the CIT(A), we do not find any infirmity in the same. Accordingly the same is upheld and the ground raised by the assessee is dismissed. 8. As it is clear from the finding of Tribunal that the assessee failed to furnish the details of disallowance under section 14A and, therefore, the disallowance made by the AO was found by the Tribunal without any infirmity. For the year under consideration the assessee has specifically raised a point before the AO that 97.82% of the investment is in the subsidiary companies and joint venture companies and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is broadly adverted to as exempt income as an abbreviated appellation. 9. After considering these principles as emerged from the decision of Hon ble Supreme Court in the case of Walfort Share and Stock Brokers P. Ltd. (supra), Hon ble Jurisdictional High Court has held in para 32 and 33 as under:- 32. Sub-section (2) and (3) to section 14A were inserted by an amendment brought about by the Finance Act of 2006 with effect from April 1, 2007. Sub Sections (2) and (3) Provide as follows. 14A.(2) 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 in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an assessment year beginning on or before April 1,2001, either to reassess under section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under section 154. 10. It has been made clear by the Hon ble High Court that sub-section (2) does not ifso facto empower the AO to apply the method prescribed by Rules straightaway without considering whether the claim made by the assessee is correct. 11. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which is taxable. For attracting the provisions of section 14A- there should be proximate cause for disallowance which has relationship with the tax exempt income as held by the Hon ble Supreme Court in case of CIT Vs. Walfort Share and Stock Brokers P. Ltd. ( 326 ITR 1). Therefore, there should be a proximate relationship between the expenditure and the income which does not form part of the total income. In the case in hand the assessee has claimed that no expenditure has been incurred for earning the exempt income, therefore, it was incumbent on the AO to find out as to whether the assessee has incurred any expenditure in relation to income which does not form part of the total income and if so to quantify the expenditure of disallowance. The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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