Case Law Details

Case Name : Lakshmi Ring Travellers Vs Assistant Commissioner of Income-tax (ITAT Chennai)
Appeal Number : ITA No.2083(Mds)/2011
Date of Judgement/Order : 02/03/2012
Related Assessment Year :
Courts : All ITAT (4268) ITAT Chennai (214)

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.

Assistant Commissioner of Income-tax

Date of Pronouncement : 2nd March, 2012

O R D E R

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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.

More Under Income Tax

Posted Under

Category : Income Tax (25152)
Type : Judiciary (9975)
Tags : ITAT Judgments (4447) section 14a (227)

0 responses to “Even in a case where no expenditure is incurred, AO has to apply Rule 8D”

  1. Ravinder Bajaj says:

    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).

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