Case Law Details
Brief of the Case
ITAT Mumbai held In the case of DCIT vs. Viraj Profiles Ltd. that section 14A provides that it mandates disallowance of expenditure ‘in relation’ to the income which does not form part of the total income while clause (f) in explanation1 to Section 115JB (2) mandates disallowance of expenditure ‘relatable’ to the income to which Section 10 (other than Section 10(38)) or Section 11 or Section 12 applies. The close perusal of the both the above provisions reveals that more or less similar language is used in both the afore-stated provisions. Further the dividend income is declared on the share investment which is exempt u/s 10(33) (not Section 10(38)). Accordingly, expenditure relatable to the exempt income to be disallowed provided the same is debited to Profit and Loss Account.
Facts of the Case
The assessee company is engaged in the business of manufacturing of S.S. Billets, Angles, Flat Bars, Channels, S.S.Wire Rods etc. During the year under consideration , the assessee company derived income of Rs.28,19,03,964/- from Business & Profession after claiming deduction of Rs.1,20,36,43,184/- u/s 10B and Rs.67,03,000/- u/s 80G.
During the course of the assessment proceedings, the assessing officer noticed that the assessee company has investments in equity shares of various companies totaling to Rs.51,03,59,701/- as on 31-03-2008. The assessee company was asked to explain as to why disallowance u/s 14A read with Rule 8D of Income Tax Rules, 1962 should not be invoked in respect of the exempt income. In response, the assessee company submitted that the assessee company has not earned any exempt income during the relevant assessment year and with prejudice to the above contentions, the assessee company submitted the working of disallowance u/s 14A. The AO rejected the contentions of the assessee company and held that since the assessee company has blocked its funds in investments not yielding any income or yielding exempt income, the invocation of Section 14A is proper.
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