TMI Blog2018 (12) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... O, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri I.Kama Sastry, AR For The Respondent : Smt. Suman Malik, DR ORDER PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [(CIT(A)]-10, Hyderabad vide ITA No.0080/CIT(A)-10/2017-18/CIT(A), Hyd-10/10165/2017-18 dated 26.06.2018 for the Assessment Year (A.Y.) 2013-14. 2. All the grounds of appeal are related to the addition made by the Assessing Officer (AO) u/s 14A read with Rule 8D of the Income Tax act, 1961 (hereinafter called as Act ) for an amount of ₹ 1,94,958/-. In the instant case, the assessee filed the return of income admitting total income of ₹ 19,70,025/- on 30.09.2013 for the A.Y.2013-14. The assessment was completed u/s 143(3) on total income of ₹ 25,48,130/-. During the assessment proceedings, the AO found that the assessee made the investments of ₹ 40,51,000/- in equity shares as under : Mega Brothers Infra Projects (P) Ltd. ₹ 50,000/- Ranganadh Trade Impex (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract relevant part of the order of the Hon ble High Court of Delhi which reads as under : 12. Section 14A of the Act, which was inserted with retrospective effect from 1st April 1962, provides for disallowance of the expenditure incurred in relation to income exempted from tax. From 11th May 2001, a proviso was inserted in Section 14A to clarify that it could not be used to reopen or rectify a completed assessment. Sub-sections (2) and (3) of Section 14A were inserted with effect from 1st April, 2007 to provide for methodology for computing of disallowance under Section 14A. However, the actual methodology was provided in terms of Rule 8D only from 24th March 2008. There was a further amendment to Rule 8D with effect from 2nd June 2016 limiting the disallowance the aggregate of the amount of expenditure directly relating to income which does not form part of total income and an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not form part of the total income. It is also provided that the amount shall not exceed the total expenditure claimed by the Assessee. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D would not arise, 18. The CBDT Circular upon which extensive reliance is placed by Mr. Hossain does not refer to Rule 8D(1) of the Rules at all but only refers to the word includible occurring in the title to Rule 8D as well as the title to Section 14A, The Circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered. 19. In the considered view of the Court, this will be a truncated reading of Section 14 A and Rule 8D particularly when Rule 8D (1) uses the expression 'such previous year'. Further, it does not account for the concept of 'real income'. It does not note that under Section 5 of the Act,- the question of taxation of 'notional income' does not arise. As explained in Commissioner of Income Tax v. Walfort Share and Stock Brokers Pvt. Ltd [2010] 326 ITR 1 (SC), the mandate of Section 14A of the Act is to curb the practice of claiming deduction of expenses incurred in relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making any apportionme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(ii) 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 qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India Limited Vs. Additional CIT 77 Taxmann. Com 257 held that no disallowance is called for when there is no exempt income. For ready reference, we extract relevant paragraph No.6 of this Tribunal order which reads as under: 6. We have heard the rival submissions and perused the material on record. The assessee has rental income from godowns and the business loss. The assessing officer has completed the assessment u/s 143(3) by order dated 04.11.2011. The Ld.CIT has called for the record u/s 263 and issued the notice for revision for incorrect set off of business loss against the rental income. After verification of the material on record, the Ld.CIT has dropped the issue with regard to incorrect set off of business loss against the income from property which was examined by the assessing officer. During the course of revision proceedings, it has come to the notice of Ld.CIT that the assessee has made investments in shares and bonds and did not make disallowance which was required to be made u/s14A of IT Act. The assessee explained that there were no expenses incurred in relation to the exempt income which was claimed as deduction for the assessment year 2009-10. Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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