M/S.. PRIME MAXI PROMOTION SERVICES (P) LTD.,NEW DELHI vs. DCIT, NEW DELHI

The present appeal is preferred by the assessee against the order dated 5.8.2013 passed by the Ld. CIT(A)-XXXI, New Delhi for assessment year 2009-10 wherein the Ld. CIT(A) has confirmed the disallowance of Rs.45,776/- u/s 14A of the Income Tax Act, 1961.

At the outset, the Ld. AR submitted that the disallowance was made by the Assessing Officer without considering the submissions of the assessee in this regard. He pointed out the relevant pages in the paper book which were filed both before the Assessment Year 2009-10 Assessing Officer as well as the Ld. CIT (A) in support of the assessee’s submission that the provision of the Act relating to the disallowance u/s 14A was not attracted in the case of the assessee. It was submitted that the Ld. CIT (A) also did not consider the pleadings and confirmed the disallowance.

The learned Departmental Representative placed reliance on the orders of the authorities below and submitted that the disallowance had been correctly made and submitted that the same should be upheld.

We have heard the rival contentions and perused the records. It is seen that the Assessing Officer has dealt with the issue on page 2 of his order as under:-

The Ld. CIT (A) has dealt the issue in para 4.1.1 of the impugned order as under:-

On going through these findings of the lower authorities, it is very much evident that the disallowance u/s 14A has been made without considering the submissions of the assessee.

The scheme of section 14A has within it implicit notion of apportionment in the cases where the expenditure is incurred for the composite/indivisible activities in which taxable and non- taxable income is received. But when it is possible to determine the actual expenditure in relation to the exempt income or when no expenditure has been incurred in relation to the exempt income, then principle of apportionment embedded in section 14 A has no application. The objective of section 14 A is not allowing to reduce tax payable on the normal exempt income by debiting the expenditure incurred to earn the exempt income. Thus, the expenses incurred to earn exempt income cannot be allowed and the expenses shall be allowed only to the extent they are related to the earning of taxable income. If there is expenditure directly or indirectly incurred in relation to exempt income, the same cannot be claimed against the income, which is taxable as it is held by the Hon’ble Supreme Court in case of Commissioner of Income-tax v. Walfort Share and Stock Brokers P. Ltd. reported in 326 ITR 1 (SC) that for attracting the provisions of section 14 Assessment Year 2009-10 A, there should be proximate cause for disallowance which as relationship with the tax exempt income. The expenditure incurred in relation to the income which does not form part of total income has to be disallowed. However, it should be proximate relationship between the expenditure and the income, which does not form part of total income. Once such proximity relationships exist, the disallowance is to be effected. In case the assessee had claimed that no expenditure has been incurred for earning the exempt income, it is for the assessing officer to determine as to whether the assessee had incurred any expenditure in relation to income which did not form part of total income and if so, to quantify the extent of disallowance. Thus, in order to disallow the expenditure under section 14A, there must be a live nexus between the expenditure incurred and the income not forming part of total income. No notional expenditure can be apportioned for the purpose of earning exempt income unless there is an actual expenditure in relation to earning the income not forming part of total income. If the expenditure is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made I.T.A. No. 6008/D/2013 Assessment Year 2009-10 under section 14A merely because some tax exempt income is received by the assessee.

Therefore, on an overall consideration of the facts of the case, it is our considered opinion that the disallowance was made without due deliberation and analysis by the Assessing Officer and we remit the issue to the file of the Assessing Officer for de novo consideration of the disallowance u/s 14A after giving due opportunity to the assessee to present its case.

In the result, the appeal of the assessee is allowed for statistical purposes.