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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 8, Chennai, dated 25.07.2016 and pertains to assessment year 2013-14.
The only issue arises for consideration is with regard to disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short 'the Act') read with Rule 8D of the Income-tax Rules, 1962.
Sh. N. Devanathan, the Ld.counsel for the assessee, submitted that for the year under consideration, the assessee earned `1,41,72,409/- as dividend income from the investments.
The assessee had also earned ` 54,35,46,883/- from advertisement and other income of `1,86,77,652/-. According to the Ld. counsel, no expenditure was incurred for earning the dividend income. The entire expenditure of the company was for earning advertisement income other than the dividend income. Referring to Section 14A of the Act, the Ld.counsel submitted that the expenditure claimed by the assessee for earning the income, which does not form part of total income, cannot be allowed. If there was no expenditure incurred by the assessee, which can be directly attributable to exempt income, the question of allocation of any expenditure does not arise. According to the Ld. counsel, when the assessee has several source of income, one or a few of which are exempt, the common expenditure need not be allocated for the purpose of disallowance.
The Ld.counsel for the assessee further submitted that the principle of apportionment of expenditure can be applied only in cases where all the ventures carried on by the assessee did not constitute one indivisible business. According to the Ld. counsel, the assessee-company is one indivisible unit having a few sources of income, one of which is dividend income from investments.
Therefore, the expenditure of the company should not be arbitrarily allocated between the taxable and non-taxable income.
Introduction of Section 14A of the Act in statute book does not alter the import of the judgment of various High Courts and Supreme Court. Section 14A of the Act provides for disallowance of expenditure directly attributable to earning of exempt income. Rule 8D of Income-tax Rules, 1962 was introduced with effect from 24.03.2008 for method of computation of expenditure. According to the Ld. counsel, Rule 8D is not automatically applied in all the cases where there was exempt income. According to the Ld. counsel, Rule 8D is applicable only to the cases where the Assessing Officer is not satisfied as to the claim of expenditure relatable to earning of the exempt income. Alternatively, the Ld.counsel submitted that the method of computation of disallowance is also not strictly followed by the Assessing Officer under Rule 8D. The assessee-company made the investments out of own funds and not of any borrowed funds, therefore, according to the Ld. counsel, the Assessing Officer is not justified in making disallowance.
On the contrary, Shri V. Nandakumar, the Ld. Departmental Representative, submitted that Section 14A of the Act provides for disallowance of expenditure for earning the exempt income.
According to the Ld. D.R., the expenditure incurred by the assessee for business purpose alone has to be allowed while computing the taxable income. The expenditure incurred by the assessee for earning income which is otherwise not taxable, cannot be allowed as expenditure while computing the taxable income. Referring to Rule 8D, the Ld. D.R. submitted that when the Assessing Officer was not satisfied with the correctness of the claim of assessee with regard to expenditure, or the assessee claims that no expenditure was incurred in relation to any income, which does not form part of total income, the Assessing Officer shall determine the amount of expenditure as per the method prescribed in Rule 8D(2). In the case before us, according to the Ld. D.R., the assessee claims that no expenditure was incurred. Therefore, the Assessing Officer by applying Rule 8D(2) computed the expenditure for disallowance.
Referring to assessment order, the Ld. D.R. submitted that there was no direct expenditure for earning exempt income. In other words, there was no expenditure in the first limb of Rule 8D(2). Referring to Rule 8D(2), the Ld. D.R. submitted that the assessee incurred expenditure by way of interest during the previous year, which is not directly relatable to any particular income or receipt. It is not in dispute that the assessee borrowed funds for the purpose of business and paid interest, therefore, there was indirect expenditure which may not be directly attributable to any particular income or receipt, therefore, according to the Ld. D.R., Rule 8D(2) is squarely applicable. The Assessing Officer has computed the expenditure under Rule 8D(2) at `36,145/-. Referring to third limb of Rule 8D(2), the Ld. D.R. submitted that Rule 8D(2)(iii) provides for 0.5% of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee on the first day and the last day of the previous year, has to be disallowed. The Assessing Officer has computed the expenditure under third limb of Rule 8D(2) as `11,13,640/-. Therefore, the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
6. We have considered the rival submissions on either side and perused the relevant material available on record. When the assessee claims that no expenditure was incurred for earning the exempt income, Rule 8D(1)(b) provides for computation of disallowance under Rule 8D(2). In the case before us, the assessee claims that no expenditure was incurred. Therefore, in view of Rule 8D(1)(b) of the Income-tax Rules, 1962, disallowance has to be computed under Rule 8D(2). The Assessing Officer after considering Rule 8D(2) found that there was no direct expenditure incurred under the first limb of Rule 8D(2). Considering the second limb of Rule 8D(2), the Assessing Officer found that the indirect expenditure, which is not relatable to any particular income, was `36,145/-. Under third limb of Rule 8D(2), the Assessing Officer computed the expenditure at `10,77,495/-. The aggregate of expenditure was computed at `11,13,640/-. Therefore, the Assessing Officer has rightly computed the disallowance as per the mandatory provisions of Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962. Hence, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced on 31st January, 2017 at Chennai.