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TMI Blog2019 (1) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has made the disallowance u/s 14A r.w.r 8D without having regard to the books of accounts of the assessee as mandated under the provision of Section 14A r.w.r. 8D. We note that the assessee has claimed Demat charges amounting to ₹ 3,569/- which are directly connected with the dividend income as envisaged in the provision of Rule 8D (2)(i) of Income Tat Rule. Therefore, we sustained the addition of ₹ 3,569/- on account of Demat Charges. Thus, we set aside the order of CIT(A) and direct the AO to delete the addition of ₹ 5,70,349/- only. - Appeal of the assessee is partly allowed. - ITA No. 3202/Ahd/2016 - - - Dated:- 15-10-2018 - Shri Rajpal Yadav, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri Sameer Jani, A.R. For the Revenue : Shri Kamlesh Makwana, Sr. D.R. ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the appellate order of the learned Commissioner of Income-Tax (Appeals)-5, Ahmedabad [ CIT(A) in short] relevant to Assessment Year 2013-14. 2. Assessee has raised the following grounds of appeal:- 1. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 3,569 2. Interest expenses Nil 3. Administrative Expenses 5,70,349 Total 5,73 918 The above disallowance was added to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld CIT(A) submitted that he has not incurred any expenses in relation to such exempted income. Therefore no disallowance on account of administrative expenses can be made. The assessee in support of his claim relied on various orders / judgments which are placed in the order of ld CIT(A). However, the ld CIT(A) disregarded the contentions of the assessee and confirmed the order of AO by observing as under: 4.3. The AO has noticed that the assessee has claimed exempt income of ₹ 21,47,943/- account of share dividend. After considering the submission of the assessee, the AO is of the opinion that for such a huge investment it is beyond imagination that no administrative expenses have been spent by the assessee. Accordingly, the AO has applied the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions and perused the materials available on record. In the instant case, the assessee has earned dividend income amounting to ₹ 21,47,943/- but the assessee has not made any disallowance of the expenses in relation to such income. Therefore, the AO invoked the provision of Section 14A r.w.r. 8D and worked out the disallowance of ₹ 5,73,918/-. The view taken by the AO was subsequently confirmed by the Ld CIT(A). 8.1 At this juncture, we find relevant to refer the provision of Section 14A r.w.r. 8D of Income Tax Rule which are extracted as under: [Expenditure incurred in relation to income not includible in total income 5. 14A. 6[(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred 7 by the assessee in relation to 7 income which does not form part of the total income 7 under this Act.] 6[(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 8, if the Assessing Officer, having regard to the accounts of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total assets as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance-sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. 8.2 The provision of Rule 8D requires to make the disallowance of the expenses even if the assessee claim that he has not incurred any expense in relation to such dividend income. But the AO before making the disallowance needs to refer the books of accounts. In the instant case, we note that the assessee has claimed total administrative expenses amounting to ₹ 8,73,482/- only. The detail of the same is placed on page 64 of the paper book. Out of such expenses, there were two major expenses of ₹ 2,45,000/- and 4,69,443/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowable as a deduction. 25. Section 14A of the Act, 1961 after its insertion came to be considered at length in Walfort Share and Stock Brokers P. Ltd. (supra) It held that insertion of section 14A of the Act, 1961 with retrospective effect reflects serious attempt on the part of Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income which does not form part of total income under the Act, 1961 against taxable income. 26. Sub-section (2) of section 14A of the Act, 1961 was considered by a Division Bench of the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. v. Dy CIT [2010] 328 ITR 81/194 Taxman 203. Therein even validity of section 14A of the Act, 1961 and rule 8D of the Rules, 1962 was challenged. The Constitutional validity was upheld. While summing up conclusion on the interpretation of the aforesaid provision, the court in para 55(viii) and (ix) of judgment observed as under (page 109 of 328 ITR) : (viii) Sub-section (2) of section 14A does not enable the Assessing Officer to apply the method prescribed by rule 8D without determining in the first instance the correctness of the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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