CHANDRA POOJARI, ACCOUNTANT MEMBER-This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-11, Chennai dated 14.10.2016 pertaining to assessment year2012-13.
2. The only issue raised in his appeal is with regard to disallowance of Rs. 12,22,441/- made u/s.14A r.w.Rule 8D(2)(iii) of the Act.
3. The facts of the case are that the assessee had admitted dividend income which was exempt from tax. Therefore, the AO disallowed u/s.14A by applying Rule 8D as follows:-
|
Rs. |
Rule 8D(2)(ii) |
3,21,927/- |
Rule 8D(2)(iii) |
12,22,441/- |
|
15,44,368/- |
On appeal the Ld.CIT(A) remitted the issue relating to Rule 8D(2)(ii)for fresh consideration. However, he confirmed the addition in respect of disallowance made under Rule 8D(2)(iii). Against this, the assessee is in appeal before us.
4. The ld.A.R submitted that in assessment year under consideration assessee has not made any investment yielding exempted income in the assessment year and also not incurred any expenditure to earn exempted income. According to him, all the investments were made before starting the profession of “Management Consultation”. According to him, there is no requirement of disallowance u/s.14A r.w.Rule Rule 8D(2)(iii). The assessee has not incurred any expenditure towards earning of exempted income. relied on the judgment of Delhi High Court in the case of Pradeep Khana Vs. ACIT, Delhi in ITA 953/2015 vide order dated 11.08.2016for the proposition when there is no expenditure incurred that cannot be any disallowance under Rule 8D(2)(iii). Further, he placed reliance on the decision of co-ordinate Bench of Mumbai Tribunal in the case of Justice Sam P. Bharucha Vs. ACIT in ITA No.3889/Mum/2011 dated 25th July 2012 wherein held that:-
5.1 The expenditure incurred in relation to the income which does not form part of total income has to be disallowed. However, it should be proximate relationship between the expenditure and the income, which does not form part of total income. Once such proximity relationships exist, the disallowance is to be effected. In case the assessee had claimed that ho expenditure has been incurred for earning the exempt income, it was for the assessing officer to determine as to whether the assessee had incurred any expenditure in relation to income which did not form part of total income and if so to quantify the extent of disallowance. Thus, in order to disallow the expenditure under section 1 4A, there must be a live nexus between the expenditure incurred and the income not forming part of total income. No notional expenditure can be apportioned for the purpose of earning exempt income unless there is an actual expenditure in relation to earning the income not forming part of total income. If the expenditure is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made under section 1 4A merely because some tax exempt income is received by the assessee.
5.2 Averting to the facts of the case in hand, the assessee had made a claim that no expenditure has been incurred or claimed for earning the exempt income. From the details of the expenditure, it is clear that the expenditure incurred and claimed by the assessee has direct nexus with the professional income of the assessee. It is not the case of the revenue that the assessee has used his official machinery and Establishment for earning the exempt income. The Assessing Officer has not given any finding that any of the expendture incurred and claimed by the assessee is attributable for earning the exempt income. In other words when the assessing officer has not pointed out that certain expenditure is not incurred for earning the professional income; but are incurred in relation to dividend income or such expenditure is incurred for inseparable and indivisible activities comprising professional as well as the activities on which is exempt income has been earned by the assessee, then in the absence of any such instance of expenditure, finding of Assessing Officer or any material to show that the expenditure incurred and claimed by the assessee against the taxable income has any relation for earning the exempt income, the provisions of section 14A cannot be applied.
5.3 In the case of silicone, permissible Lal versus ACIT supra this tribunal has considered and decided an identical issue in para 4 as under:
“4. After hearing the assessee in person and arguments of the learned D.R. we are of the opinion That no disallowance is called for under section 14A. Obviously the assessee is maintaining separate books of account for purpose of business and these investments are in his personal capacity. The A.O. also has not disallowed any expenditure of personal nature out of the income from business or profession in the computation of income in the assessment order. In view of this we are of the opinion that the expenditure claimed in the business of share dealings cannot be correlated to the incomes earned in personal capacity that too on dividend, PPF interest and tax free interest on RBI bonds. In view of this, we are of the opinion that estimation of expenditure of ’20,000/- out of business expenditure claimed in business activity cannot be considered for being incurred for this earning of tax free income of above nature. In view of this disallowance so made under section 14A of ’20,000/- is deleted. Not only that the CIT(A) directed the A.O. to consider the allowance invoking Rule 8D. The Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT 328 ITR 81 has considered Rule 8D to be applicable prospective and since the assessment year involved is before the introduction of sub-section (2) & (3) of section 14A, there is no question of disallowing the amounts invoking Rule8D. Therefore, the CIT(A) ‘s direction on this is set aside and the additions so made by the A.O. in the computation of business income is deleted. Ground is considered allowed.”
5. The ld.D.R relied on the order of lower authorities.
6. We considered the arguments of both the sides in detail. Sec.14A(1) declares the law that the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act shall not be allowed as a deduction in computing the taxable income of the assessee. Sec.14A(2) provides for determining the quantum of such expenditure which shall not be allowed as a deduction. That is the machinery provision as far as sec.14A is concerned. In that provision, it has been provided that if the Assessing Officer is not satisfied with the correctness of the computations made by an assessee, he shall compute the quantum in accordance with the method that may be prescribed. For this matter, Rule 8D has already been prescribed. Sub-sec.(3) further provides that even in a case where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub-sec.(2) read with Rule prescribed. Therefore, it becomes clear that even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. Therefore, we are unable to agree with the argument of the learned A.R.
7. Further, ld.A.R relying on the decision of co-ordinate Bench of Mumbai Tribunal in the case of Justice Sam P. Bharucha Vs. ACIT (supra) is relating to assessment year 2008- 09, when there was no Rule-8D of Income Tax Rules, 1962 existed. Hence, the ratio laid down by that judgement of Mumbai Tribunal cannot be applicable to the case in hand.
8. In the result, the appeal of the assessee is dismissed.