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TMI Blog2017 (9) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... ma Rao, Accountant Member For the Assessee : Shri K.A. Sai Prasad, AR For the Revenue : Shri V. Sreekar, DR ORDER Per Inturi Rama Rao, A. M. This appeal filed by assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-5, Hyderabad, dated 28-02-2017 for the AY. 2012-13. The appellant raised the following Grounds of Appeal: 1. The order of the learned Commissioner of Income Tax, Appeal is not correct either on facts or in law and in both. 2. The learned Commissioner of Income Tax, Appeal is not justified in confirming the addition of ₹ 4,53,521/- made u/s. 14A of the I.T Act. 3. The learned Commissioner of Income Tax, failed to appreciate the fact that since the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Principal Commissioner of Income Tax Vs. IL FS Energy Development Company Ltd., [84 taxmann.com 186] (Delhi); ii. Co-Ordinate Bench decision of ITAT in ITA No. 1609/Hyd/2016 in the case of ACIT Vs. M/s. Nekkanti Sea Foods, dt. 13-03-2017. 4. On the other hand, Ld.DR vehemently argued that the provisions of Section 14A can be applied in case even in the absence of exempt income but in case, where the investment has potential to yield exempt income. 5. We have heard the rival submissions and perused the material on record. The issue in the present appeal is whether the provisions of Section 14A of the Act can be applied even in the absence of exempt income. This issue is no longer res integra as the several High Courts have held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 A Y in question but where potential exists for exempt income being earned in later A Y s. 14. In the Explanatory Memorandum to the Finance Act 2001, by which Section 14A was inserted with effect from 1 st 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 income under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me earned in the A Y 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 expression ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 CITv. Mis 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 actually ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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 the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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