Disallowance under Section 14A of Income TAx Act, 1961
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Recently, the Mumbai Bench of the Tribunal in the case of Reliance Industries Ltd. Vs Addl. CIT [2012] 79 DTR (Trib) 315 (Mum), has rendered a very significant judgement relating to disallowance under section 14A of the Income-Tax Act, 1961 (the Act).
It is obvious that when the assessee revised its return and claimed deduction under section 44C at higher level than that claimed in the original return, it was the duty of the Assessing Officer to consider the higher claim under section 44C and not to restrict himself to the claim made in original return. Any absurdity in the direction of the Commissioner (Appeals) to the Assessing Officer to consider deduction under section 44C on the basis of revised return subject to verification of the correctness of the revised return.
In the instant case, the assessee denied incurring any expenditure for earning income, which did not form part of total income during the course of assessment proceedings even when huge investments were made by the assessee in the shares for having controlling interest . In terms of the aforesaid decision of the Hon’ble jurisdictional High Court in Maxopp Investment Ltd. (supra), even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income,
Once it is not in dispute that the facts of the case are materially similar to the facts of ISG Traders Ltd. vs. CIT, WB-II, Kolkata (I.T,A No.264 of 2003-2011- TIOL-621-HC-KOL-IT). And that the said decision applies in this case, the computation of disallowance has to be done on the same basis as was accepted by Their Lordships in ISG Traders Ltd.’s case (supra).
Tribunal in the case of Ganjam Treading Co. Ltd. (supra) has already considered this situation and held that in view of the judgment of Hon’ble High Court of Karnataka in the case of CCL Ltd. Vs. JCIT (supra) the disallowance of interest in relation to the dividend received from trading shares cannot be made. We, therefore, see no infirmity in the order of the Ld. CIT(A) in deleting the disallowance u/s. 14A computed by the A.O. in relation to the stock-in-trade. The order of the Ld.CIT(A) is accordingly upheld.
Disallowance u/s 14A is contemplated in respect of exempt income and not which is eligible for deduction under any relevant provision. It is impermissible to mix both the deduction and exemption provisions and then take them in one stride for computing disallowance u/s 14A.
It was for the Assessing Officer to examine whether the disallowance offered by the assessee itself was sufficient on facts and circumstances of the case, notwithstanding the view he took regarding the applicability of rule 8D. It is not expected of him to take piecemeal decisions regarding the merits of the disallowance.
Learned AR argued that tax free securities were held by the assessee as stock-in-trade and hence the provisions of section 14A cannot apply to disallow any expenditure notwithstanding the fact that the interest income is exempt.
The issue whether any disallowance of expenditure could be made under section 14A of the Income-Tax Act, 1961 (the Act), in respect of exempt in income by way of dividend earned by an assessee engaged in the business of dealing in shares and securities; has come up for consideration before various judicial fora.
Interest expenses directly attributable to tax exempt income as also directly attributable to taxable income, are required to be excluded from computation of common interest expenses to be allocated under rule 8D(2)(ii).
