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TMI Blog2016 (2) TMI 373X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of such exempt income and disallowed it u/s.14A of the I.T. Act. The AO, therefore, asked the assessee as to why corresponding expenses attributable to such income should not be made under the provisions of section 14A of the I.T. Act. It was submitted by the assessee that no expenditure was directly incurred for earning the exempt income and therefore no disallowance u/s.14A was to be made. It was submitted that the provisions of sub-section (2) and (3) of section 14A and provisions of Rule 8D were applicable only w.e.f. A.Y. 2008-09 onwards. 4. However, the AO was not satisfied with the arguments advanced by the assessee. According to the AO it was difficult to assume that the assessee could not have incurred any expenditure in earning the exempt income and therefore disallowance of corresponding expenditure needed to be made u/s.14A. Relying on the decision of the Special Bench of the Tribunal in the case Daga Capital Management Pvt. Ltd. and Others the AO held that Rule 8D has retrospective effect and therefore such disallowance has to be made in terms of Rule 8D. The AO accordingly quantified the disallowance under Sub Rule (iii) of Rule 8D at Rs. 4,77,740/- being 0.5% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nexus between the exempt income and expenses incurred for earning the same and no disallowance can be made in the absence of any such proof. 6. The assessee further submitted that no disallowance could be made u/s.14A in respect of dividend received on shares held for trading on the ground that the gain earned is offered to tax and earning of dividend is not the main intention. Relying on the decision of the Pune Bench of the Tribunal in the case of Apoorva Patni Vs. Addl.CIT reported in 24 taxmann.com 223 it was submitted that the Tribunal in the said decision has held that no disallowance u/s.14A can be made when the shares are held for trading purposes. It was further argued that no disallowance was made by the AO u/s.14A under similar factual position in A.Yrs. 2005-06 and 2006-07 where scrutiny assessments have been made and therefore there was no reason for the AO to adopt different view in this year. Relying on various decisions it was argued that in the absence of any material change justifying the department to take a different view, vis-à-vis the view taken in the earlier years, the same position should be continued in the subsequent year. Without prejudice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,16,01,498 2007-08 2,32,09,107 1,40,200 2,33,49,307 10. Referring to the submissions to be made before the CIT(A), a copy of which is placed at pages 38 to 42 of the paper book, the Ld. Counsel for the assessee submitted that it was categorically submitted before the CIT(A) that out of the total dividend income of Rs. 2,33,49,307/- an amount of Rs. 2,32,08,107/- has been received from the 3 group companies and the balance amount of Rs. 1,40,200/- has been earned on shares held for trading activities. Referring to the decision of the Delhi Bench of the Tribunal (Third Member) in the case of Wimco Seedlings Ltd. Vs. DCIT reported in 107 ITD 267 he submitted that the Tribunal in the said decision has held that u/s.14A only expenditure which has been proved to have been incurred in relation to the earnings of tax free income can be disallowed and the section cannot be extended to disallow even expenditure which is assumed to have been incurred for the purpose of earning tax free income. It has further been held in the said decision that common expenditure incurred on the head office etc. cannot be broken up artificially to attribute or apportion a part thereof to the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld.CIT(A) held that provisions of Rule 8D are not applicable to the assessee for the impugned assessment year and is applicable from A.Y. 2008-09 onwards. However, he held that the provisions of section 14A are clearly applicable to the facts of the present case. Since the assessee has prepared only one common profit and loss account for all the activities and the expenses incurred for all the activities are debited to the common profit and loss account, therefore, it cannot be said that there was no dominant and immediate connection between the expenditure incurred and exempted income. It is the submission of the Ld. Counsel for the assessee that under identical circumstances there was no disallowance u/s.14A during A.Yrs. 2005-06 and 2006-07. It is also the submission of the Ld. Counsel for the assessee that out of the total tax free dividend of Rs. 2,33,49,307/- an amount of Rs. 2,32,09,107/- has been received from 3 group companies, namely Finolex Cables Ltd., Finolex Industries Ltd., and Finolex Plasson Industries Ltd. The balance amount of Rs. 1,40,200/- has been earned as dividend on shares held for trading activities. It is also the submission of the Ld. Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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