“Expenditure incurred in relation to income not includible in total income.
14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.
(2) The Assessing Officer shall determine the amount of
expenditure incurred in relation to such income which does not form part of the
total income under this Act in accordance with such method as may be
prescribed, if the Assessing Officer, having regard to the accounts of the
assessee, is not satisfied with the correctness of the claim of the assessee in
respect of such expenditure in relation to income which does not form part of
the total income under this Act.
(3) The provisions of sub-section (2) shall also apply in
relation to a case where an assessee claims that no expenditure has been
incurred by him in relation to income which does not form part of the total
income under this Act :]
Provided that nothing contained in this section shall empower
the Assessing Officer either to reassess under section 147 or pass an order
enhancing the assessment or reducing a refund already made or otherwise
increasing the liability of the assessee under section 154, for any assessment
year beginning on or before the 1st day of April, 2001.]
Rule 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).
(2) The expenditure in relation to income which does not form
part of the total income shall be the aggregate of following amounts, namely:—
(i) the amount of expenditure directly relating to income
which does not form part of total income; and
(ii) an amount equal to half per cent of the annual average
of the monthly average of the opening and closing balances of the value of
investment, income from which does not or shall not form part of total income:
Provided that the amount referred to in clause (i) and clause
(ii) shall not exceed the total expenditure claimed by the assessee.”
From the combined reading of the above provisions, it is
clear that for the purpose of application of section 14 r.w.r 8D(2)(iii) the AO
has to record reasons as to why he is not satisfied with the correctness of the
claim of expenditure by the assessee.
Now it is well settled proposition that recording of satisfaction
as contemplated in Section 14A(2) of the Act is a condition precedent for
determination of the amount of expenditure for earning the exempt income as
formulated.
Hon’ble Supreme Court in the case of Maxopp Investment Ltd.
Vs. CIT 402 ITR 640 (SC) has clarified this aspect in the following manner:-
“Having regard to the language of Section 14A(2) of the Act,
read with Rule 8D of the Rules, we also make it clear that before applying the
theory of apportionment, the AO needs to record satisfaction that having regard
to the kind of the assessee, suo moto disallowance under Section 14A was not
correct. It will be in those cases where the assessee in his return has himself
apportioned but the AO was not accepting the said apportionment. In that
eventuality, it will have to record its satisfaction to this effect. Further,
while recording such a satisfaction, nature of loan taken by the assessee for
purchasing the shares/making the investment in shares is to be examined by the
Assessing Officer.”
The AO in the assessment order has nowhere recorded his
satisfaction as to why the assessee’s claim that no expenditure has been
incurred for earning of exempt income and has mechanically proceeded to make
the disallowance under Rule 8D(2)(iii).
In view of the above Hon'ble Apex Court judgment, it is clear
that no disallowance can be made u/s 14A of the Act read with Rule 8D of the IT
Rules, where the A.O. failed to record dissatisfaction of correctness of the
claim of the assessee. Therefore the disallowance made under section 14A r.w.r
8D(2)(iii) is to be deleted.
The Bangalore ITAT the case of Infosys Limited in ITA No.
125&126/Bang/2019 dated 31-Jan-2023 & Delhi ITAT in the case of Uflex
Limited in ITA No. 1329/Del/2015 dated 30-Nov-2011 have held similarly.
No comments:
Post a Comment