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TMI Blog2017 (4) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure was incurred in relation to the income which does not form part of total income, he may determine the amount of expenditure in relation to such income in accordance with the method found in Rule 8D(2). The constitutional validity of Section 14A of the Act and Rule 8D of Income-tax Rules, 1962 was upheld by various High Courts in the country. The Madras High Court in Redington (India) Ltd. (2017 (1) TMI 318 - MADRAS HIGH COURT ) found that by application of matching concept, where there is no exempt income, there cannot be any disallowance of expenditure. - Decided in favour of assessee - ITA Nos.2809, 2810, 2811, 2812 & 2813/Mds/2016, C.O. Nos.184, 185, 186, 187 & 188/Mds/2016 - - - Dated:- 20-4-2017 - Shri N.R.S. Ganesan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s High Courts, therefore, whenever there was an expenditure for earning exempted income or making investment with an intention to earn exempted income, the disallowance has to be computed under Rule 8D(2). According to the Ld. D.R., Rule 8D(2) does not restrict the expenditure with regard to income. Earning of income is immaterial for disallowing the expenditure under Section 14A read with Rule 8D(2). If the contention of the assessee is that there was no income, therefore, there cannot be any disallowance under Rule 8D(2), then the very object of including Rule 8D(2) would be defeated. 4. The Ld. Departmental Representative further submitted that when the assessee has invested money in shares and debentures, the income which is exempted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (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 als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India) Ltd. (supra) found that by application of matching concept, where there is no exempt income, there cannot be any disallowance of expenditure. In fact, the Madras High Court at paragraphs 15 and 16 in their judgment has held as under:- 15. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. (Madras Industrial Investment Corporation Ltd. v. CIT (225 ITR 802)). The language of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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