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TMI Blog2023 (12) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed therein, is not in line with the provisions of the said section, whereas section 14A(2) provides that if the Assessing Officer (A.O) having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee, in respect of such expenditure in relation to exempt income he shall determine the amount of expenditure incurred in relation to exempt income in accordance with the method prescribed in Rule 8D. this provision is also applicable where assessee contends that no expenditure has been incurred in relation to earning of exempt income. Hence incurring of the expenditure in relation to exe. 2. Ld. Commissioner of Income Tax (Appeals) has erred in just stating that validity of Rule 8D was upheld by Mumbai High Court as well as Supreme Court without considering the fact that the assessee did not challenge the validity of Rule 8D but Rule 8D can be applied only when provisions of Section 14A(2) is applicable. 3. Ld. Commissioner of Income Tax (Appeals) has also erred in not considering the fact that investment in shares also includes short term investments which is taxable, hence he has erred in disallowing 1% of average investments includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lidity of Rule 8D was upheld by Mumbai High Court as well as Supreme Court without considering the fact that assessee did not challenge the validity of Rule 8D but Rule 8D can be applied only when provisions of Section 14A(2) is applicable 3 Ld. Commissioner of Income Tax (Appeals) has also erred in not considering the fact that investment in shares also includes short term investments which is taxable, hence he has erred in disallowing 1% of average investments including short term investments 4. Ld. Commissioner of Income Tax (Appeals) has erred in just stating that the Finance Act, 2002 has again amended and inserted an Explanation to section 14A of the Act, to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income claiming that the amendment has nullified several judgments as relied by the appellant wherein it was held that no disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s u/r 8D (2)(iii). 07. The assessee aggrieved with that preferred the appeal before the learned CIT (A). The assessee contested that as assessee has not incurred any expenditure, no disallowance can be made and further, assessee have owned non-interest bearing funds more than investment earning exempt income and therefore, there cannot be any disallowance. The learned CIT (A) considered the explanation of the assessee and held that those investments, which have not yielded exempt income, are also to be considered for the purpose of disallowance. He further relied on the amendment made by the Finance Act, 2022 and confirmed the above disallowance. 08. For A.Y. 2017-18, assessee filed return of income on 28th October, 2017, declaring total income of Rs.14,25,45,560/-, wherein the assessment order passed resulted into disallowance under Section 14A of the Act of Rs.11,09,384/, in the assessment order passed under Section 143(3) of the Act dated 18th December, 2019. Assessee has earned long term capital gain of Rs.7,59,043/- being exempt income. The similar reasons were given by the assessee and similar reasons were shown by the learned Assessing Officer for making the addition. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. 011. We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that assessee has earned exempt income of Rs.53,873/- for A.Y. 2016-17 and Rs.7,59,043/- for A.Y. 2017-18. For A.Y. 2016-17, assessee received dividend income and for A.Y. 2017-18, assessee received long-term capital gain exempt under Section 10(38) of the Act. For A.Y. 2016-17, by Assessee no disallowance was made under Section 14A of the Act. However, for A.Y. 2017-18, assessee disallowed the Demat charges and security transaction tax. The learned Assessing Officer categorically noted that as assessee has investment in mutual funds such investment cannot be made without incurring any expenditure. Merely, the dividend income is received in the bank account of the assessee but the disallowance of investment also requires expenditure. In view of this, we find that the learned Assessing Officer has recorded satisfaction before invoking the provisions of Rule 8D of the Rules about the correctness of claim of the assessee. However, we agree with the assessee that the disallowance cannot be exceeded the exempt income earned by the assessee. In the present case, it is also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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