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TMI Blog2018 (3) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... d 24. 08. 2016, which in turn arises out of an assessment order passed by the AO u/s 143(3) of the I. T. Act, 1961 (hereinafter referred to as the 'Act'), dated 04. 03. 2014. 2. The grounds of appeal raised by the Revenue reads as under: "1. On facts and circumstances of the case, the ld. CIT(A) has erred in allowing relief to the assessee on account of disallowance u/s 14A, ignoring the fact that the assessee had made various expenditures as per its own wish and capitalized the same during the year without allocating any part of the said expenditure made towards earning of exempt income and avoid payment of tax thereon on such expenditure. 2. On facts and circumstances of the case, the ld. CIT(A) has erred in allowing relief to the assessee on account of disallowance u/s 14A without appreciating. 3. The appellant craves leave to add/alter/modify the grounds of appeal. " 3. The brief facts apropos this issue are that assessee filed his return of income for assessment year 2011-12 declaring total income of ₹ 2,37,54,826/- on 28. 09. 2011. The assessee's case was selected for scrutiny u/s 143(2) of the Income Tax Act and the AO completed the assessment u/s 143(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l before the ld CIT(A), who has deleted the addition made by the AO. During the appellate proceedings, the assessee submitted before the ld CIT(A) that assessee is not declaring any income in the profit and loss account, therefore, there is no question to disallow any expenditure. The assessee's plant was under-construction; therefore, all the expenses incurred by the assessee had been capitalized to the project development expenditure account. The ld. CIT(A) based on the submissions of the assessee held that it was an admitted fact that in arriving at returned income, the assessee has not claimed deduction for any expenses and therefore, merely on presumption the AO could not make disallowance of hypothetical expenses for which no deduction was claimed. Hence, the ld. CIT(A) deleted the addition of ₹ 3,04,42,822/-. 5. Not being satisfied with the order of the ld. CIT(A), the Revenue is in appeal before us. The ld. DR for the Revenue, has primarily reiterated the stand taken by the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the ld. counsel for the assessee has defended the order passed by ld CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tune of ₹ 13,788/-, except to this, there is no any income and expenditure have been shown in Profit& Lossaccount. It is an undisputable principle that when the assessee has not shown any income and expenditure in the profit and loss account the basis for invocation of section 14A disallowance does not arise. That is, the disallowance under section 14A is computed if there is income and expenditure, and in the assessee's case under consideration there is no any income and expenditure hence no disallowance is required. For that we rely on the judgment of Coordinate Bench, Mumbai in the case of M/s. TAG Offshore Limited vs. ACIT-5(3), ITA No. 710/M/2011, dated 08. 08. 2014 wherein it was held that interpretation of the AO that sub-section (3) of section 14A independently provides that in case no claim of expenditure has been made by the assessee then also the disallowance u/s 14A has to be made, is completely misplaced and is not legally tenable. Only when the precedent conditions of sub-section (1) are satisfied, then only provisions of sub-section (2) and (3) will come into play, for the purpose of determination of quantum of disallowance. Accordingly, no disallowance u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as prescribed under Chapter IV would fall within s. 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of s. 14A. Further, s. 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in ss. 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under s. 14A. Reading s. 14 in juxtaposition with ss. 15 to 59, it is clear that the words "expenditure incurred" in s. 14A refers to expenditure on rent, taxes, salaries, interest, etc. in respect of which allowances are provided for (see ss. 30 to 37). Every payout is not entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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