SHRI SHRENIK NALIN ZAVERI,MUMBAI vs. ACIT-19(3), MUMBAI

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ITA 2319/MUM/2018Status: DisposedITAT Mumbai16 August 2019AY 2013-144 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that disallowance under Section 14A(3) read with Section 14A(2) can be made even if the assessee claims no expenditure was incurred. However, the disallowance under Rule 8D(2)(iii) must only consider investments yielding exempt income during the year.

What were the facts?

The assessee earned exempt income but did not disallow any expenditure for earning it. The Assessing Officer disallowed ₹3,40,419 under Section 14A read with Rule 8D. The CIT(A) upheld this disallowance.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D is automatic, and whether only investments yielding exempt income should be considered for disallowance.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “G”BENCH, MUMBAI

Before: SHRI SAKTIJIT DEYAND SHRI N.K. PRAHDN

For Appellant: Shri Pravin K. Chheda
For Respondent: Shri Chaudhary Arunkumar Singh

Date of Hearing – 31.07.2019 Date of Order – 16.08.2019

O R D E R PER SAKTIJIT DEY. J.M.

Captioned appeal by the assessee arises out of order dated 14th February 2018, passed by the learned Commissioner of Income Tax (Appeals)–30, Mumbai, for the assessment year 2013–14.

2.

The only issue arising in the present appeal is with regard to the disallowance of ` 3,40,419, made under section 14A r/w rule 8D.

2 Shri ShrenikNaliu Zaveri 3. Brief facts are, the assesseeis an individual. For the assessment year under dispute the assessee filed his return of income on 17th September 2013, declaring total income of ` 67,86,280. In the course of assessment proceedings, the Assessing Officer noticed that during the year under consideration, the assessee had earned exempt income of ` 25,98,520, whereas, the assessee has not disallowed any expenditure incurred for earning such exempt income. Being of the view that the assessee must have incurred some expenditure for earning exempt income, the Assessing Officer disallowed an amount of ` 3,40,469, under rule 8D(2)(iii).

4.

The assessee challenged the aforesaid disallowance before learned Commissioner (Appeals), however, he did not interfere.

5.

The learned Authorised Representative submitted, the disallowance under section 14A is not automatic. The Assessing Officer must record a satisfaction that assessee’s claim that it has not incurred any expenditure for earning exempt income is not correct having regard to the books of account. He submitted, unless the Assessing Officer establishes a nexus between the exempt income and expenditure, no disallowance can be made. He submitted, the expenditure incurred by the assessee is shown in the capital account and it was not claimed as deduction from short term capital gain. Further, he submitted, assessee has not borrowed any fund for its 3 Shri ShrenikNaliu Zaveri investment activities, therefore, there is no interest expenditure. Thus, he submitted, in such circumstances, no disallowance under section 14A r/w rule 8D can be made.

6.

The learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).

7.

We have considered rival submissions and perused the material on record. As per the provision of section 14A(3) r/w sub–section (2), even in a case where the assessee claims that no expenditure was incurred by him in relation to income which does not form part of the total income, still, the provision of sub–section (2) will apply and disallowance of expenditure can be made. Further, from the computation of disallowance under section 14A, it is observed that the Assessing Officer has not disallowed any interest expenditure and has only disallowed administrative expenditure under rule 8D(2)(iii), therefore, the contention of the assessee that it has not incurred any expenditure is immaterial. However, while computing the disallowance under rule 8D(2)((iii), the Assessing Officer can only consider those investments which have yielded exempt income during the year. Therefore, we direct the Assessing Officer to factually verify the aforesaid aspect and compute disallowance under rule 8D(2)(iii) by taking into account only such investments which have yielded exempt

4 Shri ShrenikNaliu Zaveri income during the year. Grounds are partly allowed for statistical purposes.

8.

In the result, appeal is partly allowed for statistical purposes. Order pronounced in the open Court on 16.08.2019

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