TMI Blog2017 (11) TMI 1965X X X X Extracts X X X X X X X X Extracts X X X X ..... ondly, no exempt income has been earned by the assessee during the year and hence disallowance u/s 14A was not attracted. These facts are nowhere disputed or controverted by the revenue. Our view is fortified by a recent judgment of Hon ble Delhi High Court rendered in PCIT Vs. IL FS Energy Development Co. Ltd. [ 2017 (8) TMI 732 - DELHI HIGH COURT] where the Hon ble court has discussed the issue elaborately in the light of statutory provisions and CBDT circular dated 11/05/2014. Thus we dismiss this ground of revenue s appeal. - I.T.A. No. 948/Mum/2015 And Cross Objection No.143/Mum/2016 - - - Dated:- 8-11-2017 - SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For The Assessee : Kirit Kamadar Parth For The Revenue : Suman Kumar, Ld.DR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeal by revenue for Assessment Year [AY] 2009- 10 assails the order of the Ld. Commissioner of Income-Tax (Appeals)- 5 [CIT(A)], Mumbai, Appeal No. IT-390/11-12/215/14-15 order dated 14/11/2014 . The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax 3(1)(1), Mumbai on 30/12/2011 u/s 1 43(3) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14A was applicable to the case of the assessee and accordingly, applying Rule 8D, computed aggregate disallowance of ₹ 13,58,162/- which comprised of interest disallowance of ₹ 12,33,162/- u/r 8D(2)(ii) and expense disallowance of ₹ 1,25,000/- u/r 8D(2)(iii). 3. Aggrieved, the assessee contested both the issues successfully before Ld.CIT(A) vide impugned order dated 14/11/2014. Qua civil work expenses, the assessee submitted that the party in question regularly carried out such work for various other concerns of the assessee in the past. The assessee also provided complete details of the said party including of Income Tax Returns, relevant data from Registrar of Companies, Cheque Clearance certificate, project wise capitalization of expenses, photographs etc. to contend that the expenditure was genuine. The Ld. CIT(A), after considering the same, was convinced with assessee s explanation since manufacturing could not be possible without requisite civil work in the construction of factory building. Similarly, disallowance u/s 14A was deleted on the premises that the assessee had own sufficient funds to make the reflected investments. Aggrieved, the revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 13. In the above background, the key question in the present case is whether the disallowance of the expenditure will be made even where the investment has not resulted in any exempt income during the AY in question but where potential exists for exempt income being earned in later AYs. 14. In the Explanatory Memorandum to the Finance Act 2001, by which Section 14A was inserted with effect from 1st April 1962, it was clarified that expenses incurred can be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered 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 apportionment of expenses incurred in relation to exempt income. Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11th May 2014, the decision of this Court in Cheminvest Ltd. ( supra ) requires reconsideration. 20. In M/s. Redington ( India ) Ltd. v. The Additional Commissioner of Income Tax, Company Range V, Chennai (order dated 23rd December, 2016 of the High Court of Madras in TCA No. 520 of 2016), a simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income should in fact have been earned as a result of the expenditure. 21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is for the purpose of making or earning such income. Section 14A of the Act on the other hand conta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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