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TMI Blog2020 (11) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT (Appeals) has erred in confirming the same. On the facts and circumstances of the case and the law applicable, the disallowance as made / confirmed is wholly erroneous is to be deleted. 3. In any case and without prejudice, the disallowance under Section 14A r.w.rule 8D of the Act cannot exceed exempt income received. The disallowance as made/confirmed is erroneous and excessive. 4. In any case and without prejudice, only those investments which have yielded exempt income should have been considered for computing disallowance under Section 14A of the Act. The computation as done by the authorities below being erroneous and excessive is to be rejected. 5. In view of the above and on other grounds to be adduced at the time of hearing, it is requested that the order passed be quashed or atleast the disallowance as made by the Assessing Officer be deleted and suitable relief under the law is to be given to the appellant and interest levied be also deleted." 3. The assessee has also raised additional grounds which read as under : "1. The disallowance under Section 14A r.w.Rule 8D of the Act cannot exceed exempt income received. The disallowance as made/confirmed is er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind Developers & Citizen Co-op. Society Ltd. did not yield any income and hence Section 14A of the Act was not applicable in respect to these investments. The Assessing Officer however rejected the contentions raised by the assessee and accordingly reworked the disallowance under Section 14A of the Act, to Rs. 13,31,421. Since the assessee on its own had disallowed Rs. 3,30,421 in its computation of income, the remaining amount of Rs. 10,01,000 was added back to the total income of the assessee. The relevant finding of the Assessing Officer in this regard read as follows : " 4.1 The contention of assessee is not acceptable. The expression 'income' appearing in Sec. 14A(1) includes positive income, nil income and negative income (loss). Income not forming part of Total income, whether it is positive, Nil or negative, is to be excluded in the computation of total income and the corresponding expenditure both direct and indirect should be excluded in view of the provisions of Sec. 14(2) & (3) r.w. Rule 8D. Similar issue came up before the Chennai Bench of the Hori ble ITAT in the case of M/s MGM Diamond Beach Resorts P. Ltd V DCIT (Chennai ITAT B Bench, decision rendered on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quoted in 16 taxmann.com 289 (Ker.) (2011) has ruled that the purpose of investment is immaterial - "In any case, we do not think that the object or purpose of the investment affects operation of section 14A of the I.T. Act inasmuch as any expenditure incurred for earning tax free income is not an allowable deduction by virtue of operation of the said section" 4.4 Reliance is placed on the decision of the Bombay High Court in the case of Godrej & Boyce vs. DCIT, wherein it has been held that disallowance under Rule 8D r.w.s. 14A(2) is "fair and reasonable". Accordingly, the amount of disallowance is reworked to Rs. 13,31,421. as per Annexure-I. Since the assessee on his own disallowed Rs. 3,30,421 in computation of total income, the remaining amount of Rs. 10,01,000 is added back to the total income of the assessee." 6. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal to the first appellate authority. The ld. CIT (Appeals) confirmed the view taken by the Assessing Officer. The relevant finding of the CIT (Appeals) reads as follows : " 5.2 The submission of the appellant has been considered. It is observed that though the appellant has also ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le the assessee claimed that no expenses was incurred in this regard, the assessing authority has disallowed the said expenditure even in excess of the dividend income itself. The said calculations do not appear to be computed in accordance with Rule 8D of theRules. We do not find any rational basis for the same." 9. Further the Hon'ble High Court held as follows : "14. We make it clear that the expenditure for earning exempted income has to have a reasonable proportion to the income, so earned, going by the common financial prudence. Therefore, even if the Assessing Authority has to make an estimate of such an expenditure incurred to earn exempted income, it has to have a rational nexus with the amount of income earned itself. Disallowance under Section 14A of Rs. 2,48,85,000/- as expenses to earn exempted Dividend income of Rs. 1,80,30,965/is per se absurd and hypothetical. The disallowance under Section 8D cannot exceed the expenses claimed by assessee under the Proviso to Rule 8D. Therefore, the assessee claimed that assessee did not incur any such expenditure during the year in question to earn Dividends of Rs. 1,80,3o,965/-, the burden was upon the assessing authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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