TMI Blog2012 (3) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... hly unjustified and arbitrary ignoring the fact that the assessee had not received any dividend from investment and the dividend was received only from trading stock. 4. That the CIT(A) has erred in confirming the disallowance u/s 14A of the Act ignoring the material fact that no nexus of expenses incurred by the assessee with respect to tax-free earning had been established. 2. The issue in this appeal relates to disallowance of ₹ 15,03,031/- made u/s 14A read with Rule 8D of the I.T. Rules, 1962. A perusal of the assessment order reveals that disallowance in question has been made by the Assessing Officer observing that from the balance sheet of the assessee, it was noticed that the assessee has made investment in shares of different companies. During the year, the assessee has received dividend income from the said companies, which she has claimed as exempt. At the same time, the assessee has claimed expenses of ₹ 27,26,953/- in respect of interest on loan. Therefore, the disallowance is required to be made u/s 14A of the Act in respect of the claim of expenses on account of interest. 3. Assessee took up the matter in appeal and it was submitted before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 7539025/- in equity shares was made out of interest free funds. Therefore, it cannot be accepted that no expenditure in relation to investment activity was incurred by the appellant. As regards, the claim of the appellant that the dividend income has been received by the assessee incidentally to its main business activity of sale/purchase of shares and therefore, no disallowance u/s 14A of the Act was called for, on consideration, the same distinction between the dividend income earned with reference to shares held as investment or the shares held as stock in trade. What is material is whether there is any exempt income and expenditure incurred in relation thereto. The appellant has not disputed the fact that on the date of issue of dividend warrants, he was the owner of the assets, namely, shares in relation to which the dividend was declared. Therefore, I do not find any infirmity in the action of the Assessing Officer and the disallowance is being sustained. 5. Still aggrieved, assessee is in further appeal and Ld.Counsel for the assessee while relying upon Hon ble Delhi High Court decision in the case of Maxopp Investment Ltd. and Others vs. CIT, New Delhi and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en introduced by virtue of the Finance Act, 2006 with effect from 01.04.2007. This is apparent, first of all, from the Notes on Clauses of the Finance Bill, 2006 [Reported in 281 ITR (ST) at pages 139-140]. The said Notes on Clauses refers to clause 7 of the Bill which had sought to amend Section 14A of the said Act. It is specifically mentioned in the said Notes on Clauses that:- This amendment will take effect from 1 sl April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. 37. Furthermore, in the Memorandum explaining the provisions in the Finance Bill, 2006 [281 ITR (ST) at pages 281-281], it is once again stated with reference to clause 7 which pertains to the amendment to Section 14A of the said Act that:- This amendment will take effect from 1 sl April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. 38. We may also refer to the CBDT Circular No. 14/2006 dated 28.12.2006 and to paragraphs 11 to 11.3 thereof. Paragraph 11 dealt with the method for allocating expenditure in relation to exempt income and paragraphs 11.1 and 11.2 explained the basis and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing was free to adopt any reasonable and acceptable method. 42. Thus, the fact that we have held that sub-sections (2) (3) of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method' of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect:- The theory of apportionment of expenditure between taxable and nontaxable has, in principle, been now widened under section 14 A. So, even for the pre-Rule8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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