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2016 (2) TMI 155 - ITAT AHMEDABAD

2016 (2) TMI 155 - ITAT AHMEDABAD - TMI - Disallowance u/s 14A r.w.r. 8D - Reduction of disallowance u/s 14A suo-moto in revised return - whether CIT(A) has erred in confirming the disallowance made by the AO under section 14A r.w. Rule 8D? - Held that:- AO has not made addition with the help of Rule 8D. The AO has observed that keeping in view the quantum of investment i.e. ₹ 8.9 crores expenses added by the assessee itself at ₹ 21,74,52/- is reasonable expenses, hence, he is satisf .....

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der section 14A ought to be ₹ 6,93,201/- which it has worked out in the alleged revised return. But, what is basis to work out this disallowance? The assessee could not demonstrate before the AO as to how the expenditure it has added back relating to earning of exempt income were inflated or added back under mistaken fact. Here it is not the case that some statutory benefit was available to the assessee, which by mistake it refrain to claim such benefit. In the present case, the assessee h .....

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87/Ahd/2011 - Dated:- 10-12-2015 - Rajpal Yadav, JM And Manish Borad, AM For the Appellant : Shri Nutan R Vakil For the Respondent : Shri Nagendra Singh, DR ORDER Per Rajpal Yadav, Judicial Member The assessee is in appeal before us against the order of the ld.CIT(A)-XX, Ahmedabad dated 3.2.2011 passed for the Asstt.Year 2007-08. 2. The grounds taken by the assessee are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative i .....

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tion 14A from ₹ 21,74,522/- to ₹ 6,93,201/- by applying the provision of Rule 8D r.w. section 14A. Cognizance of this return was not taken by the AO on the ground that it was not filed within the time available under section 139(5) of the Income Tax Act. The ld.AO has observed that the assessee-company made investment of ₹ 8.9 crores in tax free investment. He confirmed the disallowance made by the assessee for the purpose of section 14A in the original. The assessee has made d .....

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ule 8D cannot be applied retrospectively. It is applicable from the assessment year 2008-09. Thus, it is not applicable in the assessment year 2007-08. In the computation made by the assessee on the basis of this rule could not be approved by the AO. The ld. Counsel for the assessee further contended that the assessee in its return has itself added back a sum of ₹ 21,74,522/-, but that admission was made by the assessee on an erroneous interpretation of Rule 8D. Once the Rule 8D is not app .....

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n the original return filed by the assessee, a disallowance of ₹ 21,74,522/- was made by the assessee itself. This amount was added back by the assessee on the ground that it is relatable to earning of exempt income. The assessee has filed revised return on 28.1.2009. As per section 139(5) of the Act, the revised return could be filed within one year from the end of the relevant assessment year or completion of the assessment whichever is earlier. The return was processed under section 143 .....

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for earning the exempted income, there could not be any disallowance under section 14A. While we agree that the expression "expenditure incurred" refers to actual expenditure and not to some imagined expenditure we would like to make it clear that the actual' expenditure that is in contemplation under section 14A(1) of the said Act is the actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is i .....

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of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a fi .....

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. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to .....

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er gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. Ru .....

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ing regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We .....

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en incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules. 31. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one exa .....

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ally apportions the amount of expenditure by way of interest [other than the amount of interest included in clause (i)] incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, .....

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is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken. Do sub-sections (2) and (3) of Section 14A and .....

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or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the first day of April, 2001. Thus, in respect of all the assessment years prior to the assessment year beginning on or before the 1st day of April, 2001, concluded assessments could not be disturbed despite the fact that Section 14A had been expressly made retrospective with effect from 01.04.1962. The provisions of Section 14A, which were retrospective with effect from 01.04. .....

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