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TMI Blog2022 (9) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by assessee as the Assessing Officer has duly recorded his satisfaction about the correctness of claim of assessee and held that exempt income cannot be earned without making any expenses. We find that the submission made by assessee that assessee is making more emphasis on the duty of the Assessing Officer rather to show or offer a suo motu reasonable indirect expense incurred for earning exempt income. We find that the assessee has not even offered a token amount for suo motu disallowance except contending that no expenditure was incurred for earning exempt income. The exempt income consists of dividend income, interest from tax free bonds and long-term capital gains - We find that the assessee has only tried to explain that no expense was incurred qua interest from tax free bonds and dividend income. However, nowhere explained as to how the long-term capital gains was earned. Therefore, we do not find any reason to deviate from the disallowance worked out by Assessing Officer. Decided against assessee. - ITA No.187/SRT/2021 - - - Dated:- 9-9-2022 - Shri Pawan Singh, Judicial Member And Dr Arjun Lal Saini, Accountant Member For the Assessee : Ms. Vishwa Vaniwala, C.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8D has also be noted by CBDT. As per the conditions of Section 14A, the condition should be satisfied for attracting the disallowance of provisions of Section 14A, that it is an expenditure, such expenditure is incurred , such incurring of expenditure is in relation to income which does not form part of the total income under the Act, if the above conditions are satisfied, the quantum of disallowance shall be determined in accordance with sub-section (2) and (3) of Section 14A. The expression expenditure incurred in Section 14A refers to expenditure on rent, taxes, salaries interest etc., in respect of which allowance are provided for (i) when the disallowance of provision of Section 14A are triggered, the Assessing Officer has to proceed under sub-section (2) and (3) to determine the quantum of the expenditure to be disallowed, (ii) Sub-section (2) and (3) of Section 14A are intended to enforce and implement the provisions of sub-section (1), (iii) The object of sub-section (2) is to provide uniformity of method where the Assessing Officer is on the basis of the accounts of the assessee, not satisfied with the correctness of the claim of the assessee in respect of such expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded his dissatisfaction. The Assessing Officer proceeded mechanically to make the disallowance on the basis of formula given under section 14A read with rule 8D. The assessee reiterated that he has not incurred any interest expenditure. The assessee also reiterated that the Assessing Officer has not given reasons that assessee s account is incorrect, in absence thereof, Assessing Officer cannot proceed to computer the disallowance as prescribed for making such disallowance. The condition precedent to embarking upon the determination of the amount of expenditure incurred in relation to exempt income. The assessee also relied upon certain case laws. 4. The Ld. NFAC/Ld. CIT(A) after considering the submission made by assessee held that during assessment, the Assessing Officer found that assessee has shown exempt income, which comprises dividend and tax free interest and long-term capital gain. The Assessing Officer also shown that opening and closing investments which yielded exempt income are Rs.4,92,27,321/- and Rs.6,50,69,693/- respectively. The Assessing Officer asked the assessee to furnish computation of expenses disallowance under section 14A. The assessee contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, the assessee has given justification which has been duly recorded by Assessing Officer in his assessment order. The Assessing Officer was not satisfied with the reply of assessee and proceeded to make disallowance in accordance with formula prescribed Rule 8D and worked out the disallowance of Rs.5,71,485/-. Before Ld. NFAC/Ld. CIT(A), the assessee filed detailed written submission as recorded in para-4 of impugned order of Ld. NFAC/Ld. CIT(A). The Ld. AR for the assessee submits that the Assessing Officer has not recorded his dissatisfaction about the correctness of claim of assessee. At the first instance, the Assessing Officer has to determine whether the claim of assessee is correct and the determination must be having regard to accounts of assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis and only when the Assessing Officer is not satisfied with the claim of assessee then only the Legislature directions to follow the method that may be prescribed. A bare perusal of provisions of section 14A and Rule8D indicates that the Assessing Officer shall determine the amount as per Rule 8D, if he is not satisfied with the correctn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of respective exempt income. Therefore, where the assessee claimed that assessee has not incurring any such income during the year in question to earn exempt income. The burden upon the assessing authority to compute the interest on such borrowed funds which were dedicatedly used for investment in securities to earn such exempted income. 6. The Ld. AR for the assessee also given the analysis of amended Rule 8D vis- -vis the existing Rule 8D prior to 1st June, 2016 and submitted that as per proviso to amended Rule 8D, the amount referred to in clause (i) and (ii) of Rule 8D(2) shall not exceed the total expenditure claimed by the assessee. The Ld. AR for the assessee submitted that she has given the total expenditure incurred by assessee during the year is only of Rs.5,71,485/-. The ld. AR for the assessee submits that on examination of financial statement of assessee, it is clear that expenses claimed by assessee in income and expenditure account are directly related to professional income earned by the assessee. The Assessing Officer was unable to point out any expenditure which can be co-related with the earning of exempt income and mechanism applied Rule 8D. To support her su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the revenue submits that the contention of the ld AR of the assessee that assessee has sufficient interest free funds available with him has no applicability so far as disallowance under Rule 8D is concerned as such clause has been done away from the Rule 8D with effect from 01.06.2016. 8. In rejoinder the submission of Ld. AR for the assessee submitted that the assessee incurred expenditure of accounting fees of Rs.20,000/-, bank commission expenses of Rs.22,156/- and commission indirect charges expenses of Rs.33,488/- which comes to total expenses of Rs.75,644/-. These expenses are common expenses incurred by assessee. The Ld. AR for the assessee submits that if reasonable expenses is to be disallowed, 10% of total common expenses of Rs.75,644/-. may be apportioned for earning exempt income. 9. We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case law relied by ld. AR for the assessee. We find that Assessing Officer made disallowance under section 14A by invoking Rule 8D and worked out the disallowance at Rs.5,71,485/- being 1% of average value of investment a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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