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TMI Blog2018 (3) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of exempt income and avoid payment of tax thereon on such expenditure. 2. On facts and circumstances of the case, the ld. CIT(A) has erred in allowing relief to the assessee on account of disallowance u/s 14A without appreciating. 3. The appellant craves leave to add/alter/modify the grounds of appeal. " 3. The brief facts apropos this issue are that assessee filed his return of income for assessment year 2011-12 declaring total income of Rs. 2,37,54,826/- on 28. 09. 2011. The assessee's case was selected for scrutiny u/s 143(2) of the Income Tax Act and the AO completed the assessment u/s 143(3) of the Act by making the disallowance u/s 14A of the Act. During the course of assessment proceedings, the AO examined the profit and loss account submitted by the assessee and it was found that assessee declared NIL income, however, assessee has earned income from interest, sale of mutual fund and dividend income. The assessee has shown net income and expenditure in "Project capital expenditure" in the balance sheet. The AO noted that the assessee did not prepare profit and loss account when the assessee has huge mutual fund investment and incomefrom there to avoid applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses and therefore, merely on presumption the AO could not make disallowance of hypothetical expenses for which no deduction was claimed. Hence, the ld. CIT(A) deleted the addition of Rs. 3,04,42,822/-. 5. Not being satisfied with the order of the ld. CIT(A), the Revenue is in appeal before us. The ld. DR for the Revenue, has primarily reiterated the stand taken by the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the ld. counsel for the assessee has defended the order passed by ld CIT(A). 6. We have given a careful consideration to the rival submissions,and perused the materials available on record. The ld Counsel for the assessee submitted before us that the assessee company is engaged into development of a thermal power plant at Seoni, (M. P. ) and project was at construction stage and assessee company had not started any commercial production therefore, all the expenses incurred were being capitalized under the head "project development expenditure". We note that the assessee debited the expenditure after netting off income earned by way of dividend and interest, andsince, in this case earning of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ACIT-5(3), ITA No. 710/M/2011, dated 08. 08. 2014 wherein it was held that interpretation of the AO that sub-section (3) of section 14A independently provides that in case no claim of expenditure has been made by the assessee then also the disallowance u/s 14A has to be made, is completely misplaced and is not legally tenable. Only when the precedent conditions of sub-section (1) are satisfied, then only provisions of sub-section (2) and (3) will come into play, for the purpose of determination of quantum of disallowance. Accordingly, no disallowance u/s 14A is warranted in this case when the assessee has admittedly not claimed any deduction of expenditure debited in the profit and loss account while computing the total income. Therefore, disallowance of hypothetical expense for which no deduction was claimed is not justified. 6.3 We note that from the plain meaning of section 14A itself,it is clear that, "for the purposes of computing the total income", which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The section 14A also explain that "in relation to income which does not form part of total income under the Act",it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under s. 14A. Reading s. 14 in juxtaposition with ss. 15 to 59, it is clear that the words "expenditure incurred" in s. 14A refers to expenditure on rent, taxes, salaries, interest, etc. in respect of which allowances are provided for (see ss. 30 to 37). Every payout is not entitled to allowance for deduction. These allowances are admissible to qualified deductions. These deductions are for debits in the real sense. A pay-back does not constitute an "expenditure incurred" in terms of s. 14A. Even applying the principles of accountancy, a pay-back in the strict sense does not constitute an "expenditure" as it does not impact the P&L a/c. Pay-back or return of investment will impact the balance sheet whereas return on investment will impact the P&L a/c. Cost of acquisition of an asset impacts the balance sheet. Return of investment brings down the cost. It will not increase the expenditure. Hence, expenditure, return on investment, return of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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