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Viney Krishan Chaudhri Versus Asstt. Commissioner of Income Tax, Circle 16 (1) , New Delhi.

2016 (4) TMI 656 - ITAT DELHI

Disallowance u/s 14A - Held that:- Disallowance u/s 14A was made without due deliberation and analysis by the Assessing Officer and the Ld. CIT(A) was also patently wrong in confirming and enhancing the disallowance. The order of the Ld. CIT (A) is quashed. The ground relating to initiation of penalty proceedings u/s 271(1)(c) of the Act being premature is dismissed. - ITA No. 2669/Del/2013 - Dated:- 24-2-2016 - SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEM .....

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so 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 dividend and long term capital gains. Exempt dividend in personal capacity was ₹ 14,30,530/- and as the proprietor of M/s Trimblesh N Savas, it was ₹ 19,87,9 .....

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ly confirmed the disallowance made by the Assessing Officer but also directed the AO to work out the disallowance in respect of exempt income and assets held in personal capacity. Thus, in effect, while disallowing the assessee s appeal, the disallowance was enhanced. 4. The Ld. AR for the assessee submitted that the assessee had invested the surplus funds generated from the business in mutual funds, bonds and shares and had earned income on such investments in the form of dividends and interest .....

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ure 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 a .....

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bmitted that there was no collection cost for the exempt dividend income. It was submitted that in the proprietorship concern, the dividend re-invested automatically in mutual funds was ₹ 18,19,404/- and credited in the bank directly through ECS was ₹ 1,68,542/- tallying with the total dividend earned of ₹ 19,87,946/-. Similarly, in respect of the dividend earned in personal capacity, the dividend reinvested automatically by mutual funds amounted to ₹ 13,44,425/- and divi .....

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ome or when no expenditure has been incurred in relation to the exempt 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 .....

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s not form part of total income has to be disallowed. However, it should be proximate relationship between the expenditure and the income, which does not form part of total income. Once such proximity relationships exist, the disallowance is to be effected. In case the assessee had claimed that no expenditure has been incurred for earning the exempt income, it is for the assessing officer to determine as to whether the assessee had incurred any expenditure in relation to income which did not for .....

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and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made under section 14A merely because some tax exempt income is received by the assessee. 7. On going through the records and hearing the rival submissions, it is seen that the 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 .....

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NIL. The Assessing Officer has presumed that the assessee must have incurred some expenditure for earning the exempt income. The Assessing Officer has adopted the formula for estimating expenditure on the basis of investments but the justification for calculating the disallowance is missing. The assessee had not claimed any expenditure in the profit/loss account, so the onus was on the Assessing Officer to prove that out of the expenditure incurred under various heads, some were related to earni .....

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ully, we would find that the Assessing Officer is required to determine the amount 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 relat .....

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diture. 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) 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 cas .....

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correctness of the claim of the assessee, in both cases, that the Assessing Officer 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 in .....

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