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TMI Blog2020 (8) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... as seen from the details filed during the assessment proceedings for the year under consideration the assessee has shown an amount of Rs. 1,92,05,932/- towards investment in shares. The income from shares is dividend income which is exempt from tax under section 10(38) of the Act. The assessee company claimed interest income of Rs. 105,54,37,287/- During the course of assessment proceedings, the AR was asked to explain as to why disallowance u/sec. 14A r.w.r. 8D should not be made in the case of the assessee company. In response, the assessee's AR vide its letter filed in this office dated 11/03/2015 furnished a note on applicability of section 14A r.w.r. 8D which is not convincing for the reason that the above investments would yield income from dividends which is exempt from tax and further the CBDT has issued Circular No. 05/2014 dated 11/02/2014 in which it has clarified the disallowance of expenditure u/sec. 14A in cases where corresponding exempt income is not earned during the financial year for the assessee. Accordingly, the Assessing Officer worked out disallowance of Rs. 6,99,345/-. 4. On appeal, ld. CIT(A) by following the judgment of the Hon'ble Delhi High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bly 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." 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 expression used is 'for the purpose of making or earning such income'. Section 14A of the Act on the other hand contains the expression 'in relation to income which does not form part of the total income.' The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act and accordingly held that; expression "does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail of the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11th May 2014, the decision of this Court in Cheminvest Ltd. (supra) requires reconsideration. 20. In M/s. Redington (India) Ltd. v. The Additional Commissioner of Income Tax, Company Range-V, Chennai (order dated 23rd December, 2016 of the High Court of Madras in TCA No. 520 of 2016), a similar contention of the Revenue was negated. The Court there declined to apply the CBDT Circular by explaining that Section 14A is "clearly relatable to the earning of the actual income and not notional income or anticipated income." It was further explained that, "The computation of total income in terms of Rule 8D is by way of a determination involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would 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 On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 expression used is "for the purpose of making or earning such income." Section 14A of the Act on the other hand contains the expression "in relation to income which does not form part of the total income." The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act." 23. The decisions of the ITAT in ACIT v. Ratan Housing Development Ltd. (supra) and Relaxo Footwear Ltd. v. Addl. CIT (supra), to the extent that they are inconsistent with what has been held hereinbefore do not merit acceptance. Further, the mere fact that in the audit report for the AY in question, the auditors may have suggested that there should be a disallowance cannot be determinative of the legal position. That w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in Commissioner of Income Tax Vs. Maharashtra Sugar Mills Limited (1971) (82 ITR 452) and Rajasthan State Ware Housing Corporation Vs. Commissioner of Income Tax ((2002) 242 ITR 450) in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s.14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. As observed by the Supreme Court in the judgment in the case of Commissioner of Income Tax vs. Walfort Share and Stock Brokers (P) Ltd (2010)326ITR 1 '.... The mandate of s.14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income.' 10.The provision this is clearly relatable to the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 250) dismissed the SLP filed against the decision of the High Court wherein it was held that section 14A of Act cannot be invoked where no exempt income was earned in the relevant year. The relevant head note is as under:- Section 14A, of the Income-tax Act, 1961, read with rule 8D of the Income-Tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (General principle) - Assessment year 2011-12 - High Court by impugned order held that section 14A can only be triggered, if, assessee seeks to square off expenditure against income which does not form part of total income under Act; rule 8D only provides for a method to determine amount of expenditure incurred in relation to income, which does not form part of total income of assessee and it cannot go beyond what is provided in section 14A - It further held that where no exempt income i.e., dividend, was earned in relevant assessment year by assessee, section 14A could not be invoked - Whether SLP against said impugned order was to be dismissed - Held, yes In view of this, respectfully following the above mentioned decision, fundamentally when there is no exempt income earned during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der:- "6. We have heard the rival submissions and perused the material on record. The assessee has rental income from godowns and the business loss. The assessing officer has completed the assessment u/s 143(3) by order dated 04.11.2011. The Ld. CIT has called for the record u/s.263 and issued the notice for revision for incorrect set off of business loss against the rental income. After verification of the material on record, the Ld. CIT has dropped the issue with regard to incorrect set off of business loss against the income from property which was examined by the assessing officer. During the course of revision proceedings, it has come to the notice of Ld.CIT that the assessee has made investments in shares and bonds, and did not make disallowance which was required to be made u/s 14A of IT Act. The assessee explained that there were no expenses incurred in relation to the exempt income which was claimed as deduction for the assessment year 2009-10. Hence, the assessee argued before the Ld. CIT that Section 14A is not applicable in assessee's case. As per the observation of the Ld.CIT, the assessee made the investments to the tune of Rs. 19,90,625/- in shares and bonds from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the coordinate bench of the tribunal in the case of D. Veerabhadra Reddy (HUF) (supra), this appeal filed by the revenue is dismissed. 8. In the result appeal filed by the revenue is dismissed." 6. Respectfully following the decisions of the Hon'ble jurisdictional ITAT on this issue the ground of appeal on the issue of 14A disallowance is allowed. The second ground where 40(a)(ia) disallowance has not been pressed as the issue has been decided by the Hon'ble' Supreme Court in the case of Palam Gas Service dated 03.05.2017 against the assessee. Therefore, the second ground of appeal is dismissed. 9. We find that ld. CIT(A) by following the decision of the coordinate bench of the tribunal in the case of Radha Krishna Automobiles (supra), wherein the decisions of the Hon'ble Madras High Court in the case of Redington (India) Ltd., and Hon'ble Gujarat High Court in the case of Pr.CIT Vs. Sintex Industries Ltd., (82 taxman.com 171) have been followed, and held that there is dividend income and section 14A r.w.r. 8D of the IT Rules, 1962 has no application and directed the Assessing Officer to delete the addition. Ld. Departmental Representative has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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