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TMI Blog2020 (10) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... .Lakshmi for Mr.N.V.Balaji For the Respondent : Ms.R.Hemalatha Senior Standing Counsel JUDGMENT DR. VINEET KOTHARI, J. This Tax Case Appeal has been filed by the Assessee, challenging the order passed by the Income Tax Appellate Tribunal, 'B' Bench, Chennai, dated 12.05.2016, for the Assessment Year 2010-11, by raising the following substantial questions of law: "1.Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in upholding the disallowance made under Section 14A of the Income Tax Act? 2.Whether under the facts and circumstances of the case, the Tribunal could have concluded that the appellant had incurred expenditure in relation to income not includable in the total income warranting application of the Section 14A read with Rule 8D? 3.Whether under the facts and circumstances of the case, the disallowance under Section 14A could be made without any satisfaction that the appellant had incurred expenditure in relation to the income not includable in the total income? 4.Whether under the facts and circumstances of the case, the disallowance under Section 14A could exceed the income not includable in the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure under Section 14A of the Act as made by the Assessee that it is not satisfactory for such cogent reasons as specified and therefore, the same is liable to be rejected and therefore, the computation method under Rule 8D can be invoked as a legislative way out to compute the quantum of disallowance. Unfortunatley, the Revenue Authority and the Tribunal have read Rule 8D without context and as an independent provision of disallowance, as if it was an island provision of law and the disallowance computed as per Rule 8D of the Rules can go beyond the exempted income itself and can be added as a taxable income in the hands of the Assessee. Such an interpretation put by Revenue Authorities is pathetic, to say the least. 14. It is well settled that the Rule cannot go beyond the main parent provision. Therefore, what has been provided as computation method in Rule 8D cannot go beyond the roof limit of Section 14A itself under any circumstances. The Courts have time and again reiterated this correct, reasonable and clear position of law. But, merely to somehow make more disallowance and impose tax on the hypothetical income of the Assessee, in contrast to the concept of "re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure to earn that income and therefore, a larger disallowance under Rule 8D should be allowed, is only an ingenuity of argument covered by the absurdity thereof. The disallowance of expenditure incurred for the year in question only can be considered under Section 14A of the Act and no such hypothetical earning in future as against no expenditure incurred for that, is envisaged under Section 14A of the Act. 17. With respect to the learned counsel for the Revenue, we cannot accept such unfounded and imaginary situtations and submissions. The nature of investment has nothing to do with Section 14A of the Act. It is the exempted income in the form of dividend which forms the cap or roof limit for disallowance. Firstly, the Assessee has to apportion the expenditure incurred in the form of interest on borrowed funds if any or the expenditure incurred by him to earn such dividend income, which is exempt from tax and if at all the Assessing Authority is not satisfied with that declaration of the assessee, after recording such reasonable and cogent satisfaction only, he can resort to the computation method under Rule 8D of the Rules and compute such disallowance with a caveat that und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. In our opinion, the same is not permissible at all, because this average disallowance as computed under Rule 8D could be disallowed only if Assessee had actually earned Dividend income in excess of such amount of disallownace, that too after recording reasons for rejecting the apportionment of expenditure so incurred or claim that no such expenditure was incurred to earn that much of Dividend income was validly rejected by the Assessing Authority. We do not find any such reasons even recorded by the Assessing Authority in the present case." 3.The learned counsel for the Assessee Ms.N.V.Lakshmi, also urged that the Assessing Authority in the assessment order AY 2009-10 has recorded the reasons for invoking Section 14-A of the Income Tax Act, 1961 (Shortly "the Act") which do not makes any sense. The Assessee is only a Proprietorship concern, whereas the Assessing Authority has sought to disallow even the Directors' remuneration under Section 14-A of the Act, which is not even the fact situation of the legal jurisprudence. 4.We have perused the order of the Assessing Authority. The relevant extract of the same is quoted below: "2. Disallowance u/s.14A:- The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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