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TMI Blog2016 (10) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... that this disallowance was confirmed by the Ld. Commissioner of Income Tax(A) by giving a specific finding that the assessee is not fulfilling the conditions imposed under sub-sections (1) and (2) of section 35D, we, therefore, uphold the order of the Ld. Commissioner of Income Tax(A) - Decided against assessee Disallowance u/s. 14A - Held that:- We find that the assessee submitted before the lower authorities that it has not earned any exempt income during the year. The Assessing Officer has also not provided any detail of exempt income earned by the asssessse during F.Y. 2008-09. The Ld. Commissioner of Income Tax(A) held that the appellant has not been able to show before the Assessing Officer that no interest expenses have been incurred by it in relation to the assets capable of generating exempt income. The ld. counsel relied on the decision of the co-ordinate bench in the case of Shr Nandlal J. Agarwal vs. DCIT, Circle-1 Ahmedabad [2015 (7) TMI 1139 - ITAT AHMEDABAD] where it was held that the disallowance under section 14A cannot be made when no income is claimed to be exempt in that particular year after relying on the decision of Hon’ble jurisdictional high court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a part of extension of the industrial undertaking. He further stated tha bank loan was taken and also increased the authorized capital for further issuance of shares. He explained that the assessee- company was therefore required to incur expenses in the nature of fees and stamp duty payable as per the provisions of the Companies Act 1956, to increase the authorized capital. The expenses so incurred are not revenue expenses as they likely to give benefit of enduring nature,so it treated the same as deferred revenue expenses. Accordingly, it has been claiming 1/5 of the total expenditure incurred then every year, for five years. The Assessing Officer stated that the jurisdictional High Court decision in M/s Vareli Textiles Ltd 284 ITR 238(Guj), which has followed the decision of Supreme Court reported in 225 ITR 798 (SC) in Brooke Bond India Vs CIT has held that expenses for increase in authorized share capital are capital expenses which cannot be allowed as deduction as revenue expenses. He further stated that as per section 35D(2), the nature of expenses eligible for deduction u/s 35D have been specified which do not include expenses for increase in authorized share capital. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he general provisions of sec. 37 of the I.T. Act. The same is not allowed under the specific provisions of sec.35D of the I.T. Act also. Accordingly, the disallowance made by the A.O. of ₹ 1 ,04,000/- u/s. 35D of the I.T. Act is held to be correct. This ground of appeal is dismissed. 4. The ld. counsel contended that the expenses claimed be allowed as per section 35D(ii) indicating that the language of that section is so wide in nature that it would mean to include even the above expenses. On the other hand, the Ld. Departmental Representative relied on the order of Ld. Commissioner of Income Tax(A). We have carefully considered the contention of both the sides and gone through the materials available on record. The assessee has debited an amount of ₹ 104,000/- as preliminary expenses on account of expenditure incurred in the case of fees and stamp duty payable to increase the authorized capital u/s. 35D of the I.T. Act We find that according to provisions of section 35D(ii) of the Act the kinds of expenses claimed by the assessee are not specifically covered in the section 35D(ii). Hon ble supreme court in the case of Brook Bond India Ltd. 225 ITR 798 has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exempt income (whether earned or not). The Assessing Officer further stated that it is to be noted that section 14A disallows expenditure in relation to income which does not form part of total income and in order to disallow the expenditure actual income need not be earned. He relied on the judgment in the case of Cheminvest Ltd. vs. ITO (ITAT, Delhi (SB)) in ITA No. 87/Del/2008. The Assessing Officer pointed out that the assessee has not been able to show that no interest expenses incurred in relation to exempt income. The Assessing Officer held that the provisions of sec. 14A is applicable in the case of the assessee and worked out disallowance u/s. 14A of the Act to the amount of ₹ 326457/-. The assessee filed appeal before the ld. Commissioner of Income Tax(A) against the order of the Assessing Officer. The Commissioner of Income Tax(A) held as under:- 3.2 I have carefully considered the rival contentions. As far as the claim of the appellant that no exempt income has been earned during the year is concerned the same is not accepted since the act provides that the investments made by the appellant should be capable of producing or generating exempt income. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to such income which does not form part of the total income under this Act in accordance and 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. From the plain reading of the provisions of section 14-A it clearly emerges that:- 1. The assessee must have earned an exempt income 2. The assessee must have incurred an expenditure in relation to that income 3. The assessing officer shall work out the expenditure incurred to earn such income. In the case of the company it is evident from the Profit loss account and return of income filed by the company that it did not earn any income exempt from income tax, hence the provisions of section 14-A itself are not applicable to the case 7. We find that the assessee submitted before the lower authorities that it has not earned any exempt income during the year. The Assessing Officer has also not provided any detail of exempt income earned by the asssessse during F.Y. 2008-09. The Ld. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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