2012 (3) TMI 464 - AT - Income Tax

Disallowance u/s 14A - Held that - It has been provided that if the Assessing Officer is not satisfied with the correctness of the computations made by an assessee he shall compute the quantum in accordance with the method that may be prescribed. For this matter Rule 8D has already been prescribed. Sub-sec.(3) further provides that even in a case where an assessee claims that no expenditure was incurred the assessing authority has to presume the incurring of such expenditure as provided under subsec.(2) read with Rule prescribed. Therefore it becomes clear that even in a case where the assessee claims that no expenditure was so incurred the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner literally speaking it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence the question of enquiry does not arise. Therefore we are unable to agree with the argument of the learned CA.

Summary

Issues: Disallowance under Section 14A of the Income-tax Act, 1961

Analysis:
The appeal pertains to the assessment year 2008-09 and challenges the order of the Commissioner of Income-tax (Appeals) confirming the disallowance under Section 14A of the Income-tax Act, 1961. The grounds raised by the assessee primarily question the correctness of the disallowance and the legal tenability of the Commissioner's reasoning. The learned Chartered Accountant representing the assessee argued that the Assessing Officer must conduct necessary factual inquiries before invoking Section 14A and making any disallowance. It was contended that the Assessing Officer's reliance on Rule 8D for the disallowance without factual inquiry was against the law, rendering the addition invalid. On the other hand, the learned Commissioner highlighted the scheme of Section 14A, emphasizing the special provision for treating expenditure related to income not included in the total income. Section 14A(3) mandates the Assessing Officer to follow Rule 8D even if the assessee claims no expenditure is incurred in relation to such income.

The Tribunal analyzed the arguments in detail, citing Section 14A(1) and (2) which prohibit the deduction of expenditure related to income not forming part of the total income and provide a mechanism for determining such expenditure. It was noted that if the Assessing Officer is unsatisfied with the assessee's computations, he must compute the quantum as per the prescribed method, which includes Rule 8D. Section 14A(3) further mandates the Assessing Officer to presume incurring of expenditure even if the assessee claims otherwise, thereby requiring the disallowance of presumptive expenditure as per the rules. The Tribunal interpreted this provision as a statutory presumption replacing the need for factual evidence, obligating the Assessing Officer to apply Rule 8D even when no expenditure is claimed to have been incurred. Consequently, the Tribunal dismissed the appeal, upholding the disallowance under Section 14A.

In conclusion, the Tribunal's decision underscores the statutory presumption under Section 14A, necessitating the disallowance of expenditure even in cases where no actual expenditure is claimed, and mandates the application of Rule 8D by the Assessing Officer based on statutory provisions.