Case Law Details
Brief about the case
The assessee company was engaged in the promotion of international telecom business and insurance business and filed its original return of income on declaring loss of Rs.16,07,22,655. The income was revised on16thDecember 2009, at a loss of Rs. 13,93,37,943. Consequent to the return having been picked for scrutiny, the AO observed the Assessee had shown dividend income of Rs.89, 02,540 out of which Rs. 68, 44,790 was claimed as exempt under section 10(34) of the Act. The Assessee was asked to show cause why a disallowance under Section 14A of the Act read with Rule 8D should not be made for the expenditure incurred in relation to income not forming part of the total income.
The Assessee claimed that it had incurred 10% of the exempt income as expenditure but the AO did not accept his claim. Thereby the disallowance of Rs. 2,79,02,402 was added to the taxable income of the Assessee. The Assessee then appealed to the CIT(A). It was contended by the Assessee that Rule 8D would apply only if the AO,having regard to the accounts of the Assessee of a previous year, was not satisfied with the correctness of the claim of expenditure made by the Assessee. According to the Assessee there was no such recording of satisfaction to justify the invoking of Rule 8D.
The CIT(A) reduced the disallowance and therefore the Revenue went in appeal before the ITAT.The ITAT was of the view that since there was no common interest in the present case allocation under Rule 8D(2)(ii) does not apply.
The object behind Section 14A (1) is to disallow only such expense which is relatable to tax exempt income and not expenditure in relation to any taxable income. This object behind Section 14A has to be kept in view while examining Rule 8D (2) (ii). In any event a rule can neither go beyond or restrict the scope of the statutory provision to which it relates.
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Good decision but beneficial only before the appellate authority only.