No Disallowance U/s. 14A if no expenditure incurred to earn exempt income; ITAT Restores file to AO

Vision EL Tech & Services (P.) Ltd. Vs DCIT (ITAT Bangalore)

From the details filed it is observed that there are several instances of fresh investment as well as sale of investment in shares, evidencing frequent movement in the assessee’s investment portfolio and accordingly it cannot be accepted that no expenditure has been incurred by the assessee for earning exempt income, then the expenditure incurred in relation to the salary/remuneration etc. of top management and higher executives involved in the process of taking decisions of purchase/sale of investments have an approximate nexus with the investment made by the assessee for earning exempt income. Therefore, it is a matter of finding of fact as to which of the expenditure can be attributable, being indirect expenditure incurred for an activity, which resulted in earning of exempt as well as taxable income. Since there is frequent movement in the investment portfolio of the assessee, therefore, question which requires to be ascertained is those particular items of expenditure debited by the assessee in its profit and loss account which can be apportioned and computed u/s 8D(2)(iii) of the Rules. In this factual matrix of the case, we are of the considered opinion that the issue of disallowance u/s 14A r.w Rule 8D(2)(iii) requires proper examination of the fact on the aspect of identifying the expenditure attributable thereunder and, therefore, set aside this issue to the file of the AO for examination and computation of the administrative expenditure incurred for earning the exempt income for making the disallowance u/s 8D(2)(iii). We make it clear that the disallowance made u/s 14 r.w Rule 8D(2)(iii) cannot exceed the actual expenditure debited by the assessee to the profit and loss account which has a nexus for earning of the exempt income.