TMI Blog2017 (10) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 (in short the Act) read with Rule 8D of the Income Tax Rules, 1962 (in short the Rules and in view of the CBDT Circular No. 05/2014. 3. The ld. CIT(A) has granted relief to the assessee by holding as under:- I have gone through assessee s submission and AO s findings. Ground no 1 is general in nature and is not being adjudicated. As regards Ground of appeal no. 2, it is seen that the G.P. shown was 1% as against 1.05% in the immediately preceding year. On a turnover of more than 109 crores, this marginal decrease in my opinion is insignificant and could be due to various business factors which also cannot give constant G.P. year after year. When the department does not give any extra credit to a business for achieving a higher G.P. then it should also not be concerned with a minor decrease in the same especially when, as in this case, the A.O. has no specific defects highlighted in the books but has generalized his argument on the basis of absence of stock register quality wise certain expenses not being supported by proper vouchers been paid in cash. The assessee is a foodgrain dealer in such a trade it is neither practical nor possible to maintain qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. According to the Learned Standing Counsel, the provisions of s. 14A are made applicable, in terms of sub-section (1) thereof to income 'under the act' and not 'of the year' and a disallowance under s. 14A r.w. Rule 8D can thus be effected even in a situation where a tax payer has not earned any taxable income in a particular year. 9. We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted ' as a response to the judgments of the Supreme Court in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 1TR 452 and Rajasthan State Ware Housing Corpn. v. CIT [2000] 242 ITR 450/109 Taxman 145 in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s. 14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by the Assessee in the relevant AY? The Court referred to the decision of this Court in Maxopp Investment Ltd's, case (supra) and to the decision of the Special Bench of the ITAT in this very case i.e. Cheminvest Ltd. v. ITO [2009] 121 1TD 318. The Court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in CIT v. Lakhani Marketing Inc. [2014] 226 Taxman 45/49 taxmann.com 257 of the High Court of Punjab and Haryana which in turn referred to two earlier decisions of the same Court in CIT v. Hero Cycles Ltd. [2010] 323 ITR 518/189 Taxman 50 and CIT v. Winsome Textile Industries Ltd . [2009] 319 ITR 204. The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. [2014] 223 Taxman 130/45 taxmann.com 116 and the third of the Allahabad High Court in CIT v. Shivam Motors (P.) Ltd . [2015] 230 Taxman 63/55 taxmann.com 262. These three decisions reiterated the position that when an Assessee had not earned any taxable income in the relevant AY in question corresponding expenditure could not be worked out for disallowance. 16. In Holcim India (P.) Ltd's, case (supra), the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Supreme Court in Rajendra Prasad Moody's case (supra), it is considered necessary to discuss the true purport of the said decision. It is noticed to begin with that the issue before the Supreme Court in the said case was whether the expenditure under Section 57(iii) of the Act could be allowed as a deduction against dividend income assessable under the head income from other sources . Under Section 57(iii) of the Act deduction is allowed in respect of any expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. The Supreme Court explained that the expression incurred for making or earning such income', did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income, s. 57(iii) does not require that this purpose must be fulfilled in order to q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. THE ITAT DELHI BENCH 'A' in Ms. Amita Verma v. Assistant Commissioner of Income-tax, Central Circle-13, New Delhi 71 taxmann.com 91 (Delhi - Trib.) Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Dividend) - Assessment years 2006-07 to 2010-11 - Assessee contended that during year it had no exempt income and, therefore, no disallowance under section 14A could be made - Assessing Officer relying upon decision of Tribunal rendered in case of Cheminvest Ltd. v. ITO [2009] 121 ITD 318 (Delhi) (SB) rejected assessee's contention - Whether since above decision of Tribunal had been reversed by jurisdictional High Court in case of Cheminvest Ltd. v. CIT [2015] 378 ITR 33/234 Taxman 761/61 taxmann.com 118 (Delhi), it would have to be held that no disallowance under section 14A can be made, where there is no exempt income - Held, yes Based on the above legal precedents relevant to the facts of this case where no exempt income has been earne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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