TMI Blog2016 (4) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... DER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER The present appeal, filed by the assessee, is directed against the order dated 4.2.2012 passed by the Ld. CIT (A)-19 New Delhi for Assessment Year 2009-10. The grounds of appeal challenge the disallowance u/s 14A of the Income Tax Act, 1961 upheld and enhanced by the Ld. CIT (A). 2. The assessee is a director of M/s Tip Top General Agencies Pvt. Ltd. He is also the proprietor of the concern M/s Trimblesh N Savas, dealing in trading of earthmovers tyres. During the year, the assessee s sources of income were salary, short term capital gains, long term capital gains, business professional income and income from other sources. The assessee also earned exempt income in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so submitted that there is a factual mistake in the figures quoted by the Ld. CIT (A). It was pointed out with reference to pages 2 to 6 of the paper book that the total expenditure debited to the profit/loss account has been taken at ₹ 2,83,53,900/- which in fact is the total of the debit side including the profit of ₹ 2,25,56,261/- and the total expenditure is only ₹ 57,97,639/-. It was also pointed out that the profit/loss account had also been debited with ₹ 1,39,205/- being loss on sale of mutual funds and the same has already been added back by the assessee in the computation of income. It was also pointed out that the profit/loss account also shows in its debit side expenses of ₹ 22,713/- on account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt income, then principle of apportionment embedded in section 14 A has no application. The objective of section 14 A is not allowing to reduce tax payable on the normal exempt income by debiting the expenditure incurred to earn the exempt income. Thus, the expenses incurred to earn exempt income cannot be allowed and the expenses shall be allowed only to the extent they are related to the earning of taxable income. If there is expenditure directly or indirectly incurred in relation to exempt income, the same cannot be claimed against the income, which is taxable as it is held by the Hon ble Supreme Court in case of Commissioner of Income-tax v. Walfort Share and Stock Brokers P. Ltd. reported in 326 ITR 1 (SC) that for attracting the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has been claiming that no expenditure has been incurred in relation to earning of exempt income. He has filed relevant documents before the authorities below but the same have not been considered and adjudicated upon. In the present case, the Assessing Officer did not bring any evidence on record to establish that any expenditure had been incurred by the assessee for earning the exempt income. In the absence of such evidence, it was patently wrong on the part of the Assessing Officer to compute disallowance u/s 14A of the Act by mechanically applying Rule 8D. We find that the audit report on Form 3CB reports that the expenses in respect of exempt income were shown at NIL. The Assessing Officer has presumed that the assessee must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he , is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Subsection (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) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly or indirectly some expenditure is always incurred which must be disallowed u/s 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14A, cannot be accepted. Disallowance u/s 14A requires finding of incurring of expenditure. Where it is found that for earning exempted income, no expenditure has been incurred disallowance u/s 14A cannot stand. 8.3 Mumbai J Bench of the ITAT has held in the case of Justice Sam P. Bharucha vs ACIT in I.T.A. No. 3889/Mum/2011 that no disallowance u/s 14A of the Act is called for when the assessee has not incurred and claimed any expenditure for earning the exempt income. 8.4 Therefore, on an overall consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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