TMI Blog2013 (8) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had also declared exempt income under section 10(34) of the Act in the nature of dividends to the tune of ₹ 12,57,90,409/-. In the course of scrutiny , it claimed to have incurred no expenditure in earning the same. What we notice from the assessment order dated 28.12.2011 is that the Assessing Officer invoked Section 14A read with Rule 8D of Income Tax Rules, 1962 (in short the Rules ) and computed disallowance/addition of ₹ 2,58,66,515/-. It is also evident to us that the Assessing Officer had calculated an amount of ₹ 1,71,75,315/- under Rule 8D(2)(ii) and that of Rs. 86,91,200/- under Rule 8D(2)(iii). The said amount was added in the assessee s total income. He had made other additions as well under section 40(a)(ia) of the Act. Since they are not subject matter of the instant appeal, we do not take notice of the same. 3. Aggrieved, the assessee preferred appeal. Therein, the CIT(A) has also confirmed the addition by agreeing with the findings of the Assessing Officer as under:- 4.3 Ground No. 3: This ground of appeal is directed against the action of the AO in disallowing an amount of ₹ 2,58,66,515/- under section 14A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs DCIT (328 ITR 81) have approved that, no deduction shall be allowed in respect of an expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act and that the AO is not only entitled but also duty bound to disallow an expenditure which is in relation to earning of exempt income. The Supreme Court of India in the case of Commissioner of Income tax, Mumbai v. Walfort Share Stock Brokers (P.) Ltd. (supra) explained the reason for the insertion of Section 14A thus: The insertion of Section 14A with retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of total income under the Act against the taxable income (see Circular No.14 of 2001 dated 22.11.2001). In other words, Section 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions. This decision-making process is very complicated and requires very careful analysis. Moreover, the assessee had to keep track of various dividend income declared by the investee companies and also to keep track of the dividend income having been regularly received by the assessee. That activity itself called for considerable management attention and could not be left to a junior clerk . In view of the above, I do not find any infirmity in the action of the AO in applying provisions of section 14A of the Act read with rule 8D in working out the expenditure attributable to earning of exempt income and the same is confirmed. No evidence or material, whatsoever, has been brought on record to show that the entire interest expenditure claimed by the appellant was incurred to earn taxable income. Therefore the proportionate disallowance as mandated under section 14A read with Rule 8D, out of the interest expenditure that has not been shown to have been incurred for earning taxable income alone is also upheld. This ground of appeal, therefore, is dismissed. Therefore, the assessee is in appeal. 4. Before us, the contention of the assessee is that the CIT(A) has wrongl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee makes a claim that only a particular amount is to be disallowed under section 14A or where the assessee does not make a disallowance under section 14A, if the AO proposes to invoke the section 14A, he is to record a satisfaction on that issue. This satisfaction cannot be a plain or a simple note. It is to be done with regard to accounts of the assessee. In the present case, there is no satisfaction by the AO and consequently, in view of the decision of the Coordinate bench of this Tribunal in the case of Balarampur Chini Mills Ltd. referred to supra, no disallowance under section 14A can be made. 7. Now coming to the merits of the issue. A perusal of the provision of section 14A(1) clearly shows the wordings, in relation to the income which does not form part of the total income under this Act . In the present case, this income, which does not form part of the total income under the Act, is the dividend income of ₹ 1,32,638/-. Therefore, if any disallowance is to be made in respect of expenditure incurred, it should be in relation to this dividend income of ₹ 1,32,638/-. If an assessee has invested in shares, which could get dividend or there is investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment Year: 2008-09 statement and other details to show the utilization of the loans. No bank would permit the loan given for one purpose to be used for making any investment in shares. The ld. CIT(A), it is noticed that after considering these facts that the assessee had not used any of its borrowings for purchasing the shares, has deleted the disallowance. On this ground itself, the deletion as made by the ld. CIT(A) is liable to be confirmed and we do so. 7.1 In any case, the working of the disallowance under sub-part (ii) of subclause (2) of rule 8D as made by the AO also suffers from a substantial error in so far as in the said rule in regard to the numerator B, the words used are the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balancesheet as on the first day and in the last day of the previous year. Here the AO has taken into consideration the investment of ₹ 103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X
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