Case Law Details
The taxpayer contended that the AO may invoke provisions of the Section 14A of the Act only after conducting necessary enquiries into the factual aspects. However, the Chennai Tribunal held that even in a case where the taxpayer claims that no expenditure was incurred in relation with the exempt income, the statute had provided for a presumptive expenditure which has to be disallowed by force of the statute. It means that even in a case where no expenditure is stated to have been incurred, the AO had to apply Rule 8D of the Rules. Therefore, the statutory presumption under Section 14A of the Act substitutes the requirement of factual evidence and the question of enquiry does not arise.
INCOME TAX APPELLATE TRIBUNAL , CHENNAI
ITA No.2083(Mds)/2011 – Assessment Year: 2008-09
Lakshmi Ring Travellers
vs.
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The above interpretation by Honable ITAT will harsh to the assessee. The Hon’able Delhi High court has given different interpretation in the judgement of Maxopp Investment. As per that Judgement the the. A.O. can disallow the expenditure as per Section 14A(2) & (3) by applying Rule 8D, if he is not satisfied by the correctness of the claim made by the assessee.
However Sub section (3) of Section 14A says that A.O. can also disallow the expenditure even if the assessee has claimed that no expenditure has been incurred but the disallowance will be worked out as per subsection (2) of 14A . It is pertinent to note that the subsection (2) of 14A would applied in the case only when the A.O. is not satisfied with the claim of the assessee and not forcefully.
Further the given below CBDT Notification no. 45/2008 dated 24.03.2008 clearly says that the method would be applied in case the A.O. is not satisfied with the claim of the assessee.
“Method for determining amount of expenditure in relation to income not includible in total income.
8D.(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with—
(a) the correctness of the claim of expenditure made by the assessee; or
(b) the claim made by the assessee that no expenditure has been incurred,
in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).