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Before: Shri Duvvuru RL Reddy & Shri S. Jayaraman
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 3, Chennai dated 21.03.2016 relevant to the assessment year 2009-10. The assessee has raised two grounds, viz., confirmation of disallowance of expenditure under section 14A of the Income Tax Act, 1961 [“Act” in short] r.w. Rule 8D of IT Rules and confirmation of levy of interest under section 234B of the Act.
Brief facts of the case are that the assessee is an individual, engaged in the profession of book publishing and filed her return of income for the relevant assessment year on 20.07.2009 admitting NIL income after adjusting business losses with the income from other sources. The return filed by the assessee was processed under section 143(1) of the Act and subsequently, selected for scrutiny by issuing notice under section 143(2) of the Act dated 23.08.2010. 2.1 On verification of details furnished by the assessee, the Assessing Officer noticed that the assessee offered only ₹.4,41,320/- under the head ‘income from other sources’. The assessee has admitted that she has earned dividend on shares of ₹.10,67,957/- and dividend on securities at ₹.33,25,474/- and claimed exemption under section 10(34) of the Act. However, the assessee has not admitted any expenditure for earning the dividend incomes. When specifically asked, it was the submission of the assessee that no expenditure was claimed while computing taxable total income except book publishing expenses claimed in respect of writing profession carried on by her and hence section 14A r.w.s. 8D is not attracted. After considering the submission of the assessee, the Assessing Officer was of the opinion that it was not possible to earn the dividend income by making investments in various financial instruments without incurring any expenditure and accordingly, by invoking the provisions of 3 section 14A r.w. Rule 8D, the Assessing Officer determined the expenditure component at ₹.6,11,423/- and brought the same to tax.
Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). By following various decisions, the ld. CIT(A) confirmed the disallowance made on this count.
On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessee made the investments out of her own funds. Disallowance under section 14A of the Act is attracted only when the expenditure incurred in relation to income which does not form part of the total income under this Act is claimed by the assessee. The ld. Counsel for the assessee has raised the contention that the Assessing Officer has wrongly disallowed the expenses at the rate of 0.5% on the average investments to the tune of ₹. 6,11,423/- by applying section 14A read with rule 8D(2)(iii). By reiterating the submissions as made before the authorities below, it was the submission that the assessee has not incurred any administrative or any other in-direct expenses for making or maintaining investment or claimed any deduction. By relying on the decision of the Tribunal in the case of Ms. Visalakshi Kannan v. DCIT in dated 14.08.2017 for the assessment year 2013-14, the ld. Counsel for the assessee prayed that the 4 I.T.A. No.1524/M/16 disallowance made under section 14A of the Act should be deleted. On the other hand, the ld. DR supported the orders of authorities below.
5. We have heard both sides, perused the materials available on record and gone through the orders of authorities below as well as paper book. The assessee earned dividend incomes on shares as well as securities of ₹.10,67,957/- and ₹.33,25,474/- respectively. By invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer determined expenditure components and disallowed ₹.6,11,423/- being expenditure for earning exempt income. While confirming the disallowance, the ld. CIT(A) has followed the decision in the case of CIT v. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom.) and in the case of Godrej & Boyce Mfg. Co. Ltd. v. CIT 328 ITR 81(Bom.), wherein, in both the cases, the assessees’ have claimed interest expenditure on borrowed funds. However, in the present case, it is an admitted fact that the assessee has not admitted any expenditure towards earning of exempt income or claimed any deduction on interest expenditure. Further, we have perused the order of the Tribunal dated 14.08.2017 in the case of Ms. Visalakshi Kannan v. DCIT (supra), wherein, the Tribunal has observed and held as under: “4.2 From the above, the AR submitted that it is clear that the assessee has not claimed any expenditure, whether taxable or exempted. Further, the assessee had huge reserves and surplus of Rs. 1145.40 lakhs at the beginning of the year and Rs. 1275.39 lakhs at the end of the year, she has not borrowed any money for any investment and all the investments have been made out of own resources only. Facts being so, the Assessing Officer has notionally added Rs. 5,21,480/- to the income, invoking section 14A r.w.r. 8D. Relying on the jurisdictional High Court decision in the case of Patco 272 ITR 195 (Mad), the AR submitted that the assessee received dividend of mutual fund units and claimed that said dividend is exempt u/s. 10(33), in absence of a proximate cause between expenditure incurred by assessee and tax exempt income, section 14A could not be invoked. Per contra, the DR supported the order of the AO & the order of the CIT(A).
We heard the rival submissions and gone through the relevant orders. It is clear from the above that the assessee has not claimed any expenditure or deduction at all. When no expenditure or deduction is incurred by the assessee in relation to any income which includes the income which does not form part of the total income, the addition made by the Assessing Officer u/s. 14A r.w.s. 8D and sustained by the CIT(A) is held as unwarranted and accordingly deleted.”
Further, we find that similar decision was also given in the case of Ms. Radha Kannan v. DCIT in dated 14.08.2017 for the assessment year 2013-14. The ld. DR could not controvert the above decisions of the Tribunal. Respectfully following the above decisions of the Tribunal, facts being similar in the present case, we delete the disallowance made under section 14A r.w. Rule 8D. Since we have deleted the disallowance made under section 14A of the Act, the interest liability under section 234B of the Act would not arise.