9911796707
TMI Blog2014 (11) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... ny has shown dividend income at Rs. 17,68,735/-. The assessee-company claimed dividend income as exempt. From the perusal of balance sheet, it was noticed by the Assessing Officer that the assessee has made investment of Rs. 2,20,95,394/- in the year under consideration as against investment of Rs. 4,78,96,132/- made in the immediately preceding year. The assessee was specifically asked to explain as to why the expenditures incurred on such investment, the income from which was claimed as exempt from taxation, may not be disallowed as per provisions of section 14A of the Act read with rule 8D of the Rules. In response thereto, it was contended that in the year under consideration, the assessee has incurred total expenses of Rs. 16,544/- only which are of statutory nature and essential for existence and running of the company, hence the disallowance under section 14A of the Act should not exceed Rs. 16,544/-. Being not convinced with the explanations of the assessee, the Assessing Officer invoked the provisions of section 14A of the Act and re-computed the disallowance as per rule 8D. The relevant observations of the Assessing Officer are extracted hereunder:- "Rule 8D (2)(ii) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vations of the ld. CIT(A) are also extracted hereunder:- "2.2.1 Having gone through the case records including Balance Sheet and Profit & Loss Account, I find that the total expenditure claimed in the Profit & Loss Account is only Rs. 16,544/-. The appellant company in its Return of Income filed, has already disallowed the entire expenditure, i.e. Rs. 16,544/- on account of Sec. 14A. The A.O. has, however, computed a disallowance of Rs. 20,48,236/- u/s 14A of the I.T. Act by invoking Rule 8D. I am of the considered view that when the assessee has claimed total expenditure of only Rs. 16,544/- in its Profit & Loss Account, the disallowance u/s 14A of the- I.T. Act cannot exceed that amount. Since the assessee company has already made this disallowance in its Return of income, no further disallowance u/s 14A of the I.T. Act was required to be made. The disallowance made by the A.O. in excess of Rs. 16,544/- is hereby deleted." 4. Aggrieved, the Revenue has preferred an appeal before the Tribunal with the submission that once the assessee has claimed exemption on dividend income, the expenses incurred in earning the dividend income as per provisions of section 14A of the Act is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would like to prefer to examine the provisions of section 14A of the Act, according to which for computing the total income under Chapter-IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income under this Act. In order to determine the amount of expenditure incurred in relation to such income, which does not form part of the total income of the assessee, the Assessing Officer has to follow the method prescribed, if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The method for determining the amount of expenditure has been prescribed under Rule 8D of the Rules which was introduced w.e.f. 24.3.2008 by the Income-tax (5th Amendment) Rules, 2008 relevant to the assessment year 2008-09. For the sake of reference, we extract the provisions of section 14A of the Act and 8D of the Rules as under:- SECTION 14A OF THE ACT: "14A. Expenditure incurred in relation to income not includible in total income.--For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; C = the average of total assets as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year. 3. For the purposes of this rule, the "total assets" shall mean, total assets as appearing in the balance-sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets." 8. From a bare reading of the aforesaid provisions, it has become abundantly clear that once the Assessing Officer has any reason to doubt the expenditures and is not satisfied with the correctness of the claim of the assessee in respect of such expenditures in relation to the income which does not form part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
