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TMI Blog2017 (9) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 - Shri H. S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member Assessee by : Shri Ashok Kumar Rai, Adv Revenue by : Shri Shravan Gotru, Sr. DR ORDER Per Prashant Maharishi, A. M. 1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) - 20, New Delhi dated 28/08/2015 wherein disallowance made by the Ld. assessing officer under section 14A of the Income Tax Act of ₹ 108194/- was upheld. 2. The solitary ground of appeal of the assessee is against disallowance confirmed by the Ld. Commissioner of income tax (Appeals) of ₹ 108194/- under section 14A of the income tax act. 3. In the present case assessee, individual filed his return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . departmental representative vehemently relied upon the orders of the lower authorities. 6. We have carefully considered the rival contentions. We have also perused the orders of the lower authorities. Undisputedly, the assessee has earned any exempt income under section 10 of the income tax act of rupees 1145710/-. However, the assessee has not offered any disallowance under section 14 A of the act. It was the claim of the assessee before the assessing officer that it has not incurred any expenditure for earning any exempt income. However, the Ld. assessing officer without recording his satisfaction that how the explanation of the assessee is incorrect applied the provisions of Rule 8D of the income tax act, 1961, and working out disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. In the above background, the key question in the present case is whether the disallowance of the expenditure will be made even where the investment has not resulted in any exempt income during the AY in question but where potential exists for exempt income being earned in later AYs. 14. In the Explanatory Memorandum to the Finance Act 2001, by which Section 14A was inserted with effect from 1st April 1962, it was clarified that expenses incurred can be allowed only to the extent they are relatable to the earned income of taxable income . The object behind Section 14A was to provide that no deduction shall be made in respect of any expenditure incurred by the Assessee in relation to income which does not form part of the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt income earned in the AY in question, the question of disallowance of the expenditure incurred to earn exempt income in terms of Section 14A read with Rule 8D would not arise. 18. The CBDT Circular upon which extensive reliance is placed by Mr. Hossain does not refer to Rule 8D (1) of the Rules at all but only refers to the word includible occurring in the title to Rule 8D as well as the title to Section 14A. The Circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered. 19. In the considered view of the Court, this will be a truncated reading of Section 14 A and Rule 8D particularly when Rule 8D (1) uses the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result in the imposition of an artificial method of computation on notional and assumed income. We believe thus would be carrying the artifice too far. 21. The decisions in CIT v. M/s Lakhani Marketing Inc. 2014 SCC Online P H 20357, CIT v. Winsome Textile Industries Limited [2009] 319 ITR 204 (P H), CIT v. Shivam Motors (P) Ltd. [2014]272 CTR (All) 277 have all taken a similar view. The decision in Taikisha Engineering India Pvt. Ltd. (supra) does not specifically deal with this issue. 22. It was suggested by Mr. Hossain that, in the context of Section 57(iii), the Supreme Court in Commissioner Of Income Tax, West v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) explained that deduction is allowable even where income was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. 21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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