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
Assistant Commissioner of Income-tax
Date of Pronouncement : 2nd March, 2012
O R D E R
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT:
This appeal filed by the assessee relates to the assessment year 2008-09. The appeal is directed against the order of the Commissioner of Income-tax(Appeals)-I at Coimbatore passed on 17.10.2011 and arises out of the assessment completed under sec.1 43(3) of the Income-tax Act, 1961.
2. The grounds raised by the assessee in this appeal read as below :
“1. The Commissioner of Income-tax (Appeals) erred in confirming the disallowance of the sum of ~ 1,67,900/- in terms of Provisions of Section 14A read with Rule 8D in computing assessee’s total income.
2. The Commissioner of Income-tax (Appeals) ought to have considered the grounds of appeal raised in the appeal on the basis of provisions set out in section 14A and the cases decided on the interpretation of section 14A.
3. In any event the reasonings of the Commissioner of Income-tax(Appeals) for confirming the disallowance is not legally tenable.”
3. We heard Shri V. Jagadisan, the learned Chartered Accountant appearing for the assesse and Shri Shaji P. Jacob, the learned Commissioner of Income-tax appearing for the Revenue.
4. It is the case of the learned CA that the Assessing Officer may invoke the provisions of law stated in sec.14A only after conducting necessary enquiries into the factual aspects of the assessee’s case. The learned CA submits that even if the law authorizes the Assessing Officer to make a disallowance on presumptive basis, the necessary enquiries may be conducted by him in the present case. The Assessing Officer has straightaway adopted Rule 8D and made the disallowance. This was made without any factual enquiry. This is against the law. Therefore, the learned CA submitted that the addition must be held to be invalid.
5. The learned Commissioner, on the other hand, explained the scheme of sec.1 4A wherein the law has made a special provision for treating the expenditure incurred in relation to income not includible in total income. The learned Commissioner invited our attention to sec.14A(3) wherein it is stated that the Assessing Officer has to follow Rule 8D even in a case where the assessee claims that no expenditure has been incurred by him in relation to the income which does not form part of the total income under the Act.
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 CA.
7. In result, this appeal filed by the assessee is dismissed.
Order pronounced on Friday, the 2nd of March, 2012 at Chennai.