Search Results For: 14A


CIT vs. Reliance Industries Limited (Supreme Court)

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DATE: January 2, 2019 (Date of pronouncement)
DATE: March 23, 2019 (Date of publication)
AY: 2003-04, 2004-05, 2005-06, 2006-07
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S. 14A/ 36(1)(iii): If the interest free funds available to the assessee are sufficient to meet its investment, it could be presumed that the investments are made from the interest free funds available with the assessee and not from borrowed funds

The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee

ACIT vs. Janak Global Resources Pvt. Ltd (ITAT Chandigarh)

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DATE: October 16, 2018 (Date of pronouncement)
DATE: December 8, 2018 (Date of publication)
AY: 2014-15
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S. 36(1)(iii): Dept's argument that Maxopp Investment/Avon Cycles 402 ITR 640 (SC) overrules the presumption that advances to sister concerns are made from own funds and not borrowed funds is not correct. Law on interpretation of judgements explained

It is evident from the above that the issue before the Hon’ble Apex Court was not whether the presumpt ion theory would apply or not where there are mixed funds and the assessee had demonstrated avai lability of sufficient own funds for making the investments . No discussion on this aspect has also been done by the Hon’ble Apex Court and merely not ing that the assessee had ut i l ized mixed funds, the Hon’ble Apex Court held that the principle of apport ionment would apply. Wi thout any discussion or del iberat ion on the presumpt ion theory, the proposi t ion laid down in the case of Avon Cycles Ltd. (supra) by the Hon’ble Apex Court has to be restricted to the extent of the issue before the Hon’ble Apex Court and facts before i t and not beyond that . And on that basis the decision of the Hon’ble Supreme Court in the case of Avon Cycles Ltd. (supra) can be read only to the extent of upholding the principle of apport ionment of expenses incurred in the context of the l imi ted fact of mixed funds avai lable wi th assessee and no further. The proposi t ion laid down cannot be stretched even logical ly to address the fact si tuat ion where suf f icient own interest free funds are avai lable wi th assessee, which fact was not there before the Hon’ble Apex court in the case of Avon Cycles (supra) , and to negate the presumpt ion that the own funds were used for making the investment , which was nei ther the quest ion raised before the apex court and therefore not addressed by i t also.

PCIT vs. Ballarpur Industries Limited (Bombay High Court)

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DATE: October 13, 2016 (Date of pronouncement)
DATE: August 17, 2018 (Date of publication)
AY: -
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S. 14A Rule 8D: The expression “does not form part of the total income” in s. 14A envisages that there should be an actual receipt of the income, which is not includible in the total income. If no exempt income is received or receivable during the relevant previous year, no disallowance u/s 14A can be made

The expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year

Lally Motors India (P.) Ltd vs. PCIT (ITAT Amritsar)

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DATE: April 12, 2018 (Date of pronouncement)
DATE: May 10, 2018 (Date of publication)
AY: 2012-13
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CITATION:
Disallowance u/s 14A & Rule 8D has to be made even if the assessee has not earned any tax-free income on the investment. Cheminvest 378 ITR 33 (Del) is not binding on the AO as it is a non-jurisdictional High Court. CBDT's Circular 5/2014 is in accordance with Godrej & Boyce Mfg. Co. Ltd 394 ITR 449 (SC) & Maxopp Investment Ltd 402 ITR 640 (SC)

The principle that it is the net income, i.e., net of expenditure relatable thereto, which is subject to tax and, correspondingly, not liable to tax, i.e., where it does not form part of the total income, is well established. Equally well settled is the principle that once an income is liable (or not liable) to tax, all expenditure relatable thereto is to be reckoned, and it matters little that the said expenditure has indeed resulted in a positive income, or in whatever sum. It is in fact this, i.e., the expenditure being higher than the gross income, which could be nil, that leads to the phenomenon of loss, which could therefore be across both the categories income, i.e., taxable or non-taxable, being essentially a matter of fact

Maxopp Investment Ltd vs. CIT (Supreme Court)

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DATE: February 12, 2018 (Date of pronouncement)
DATE: March 16, 2018 (Date of publication)
AY: -
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S. 14A/ Rule 8D - Applicability to shares held for controlling interest or as stock-in-trade: The argument that S. 14A & Rule 8D will not apply if the "dominant intention" of the assessee was not to earn dividends but to gain control of the company or to hold as stock-in-trade is not acceptable. S. 14A applies irrespective of whether the shares are held to gain control or as stock-in-trade. However, where the shares are held as stock-in-trade, the expenditure incurred for earning business profits will have to be apportioned and allowed as a deduction. Only that expenditure which is "in relation to" earning dividends can be disallowed u/s 14A & Rule 8D. The AO has to record proper satisfaction on why the claim of the assessee as to the quantum of suo moto disallowance is not correct

The first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income’ that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act

CIT vs. Essar Teleholdings Ltd (Supreme Court)

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DATE: January 31, 2018 (Date of pronouncement)
DATE: February 1, 2018 (Date of publication)
AY: 2003-04
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CITATION:
S. 14A/ Rule 8D: Entire law on whether the computation provisions of Rule 8D is retrospective explained in the light of established principles of interpretation of statutes read with verdicts in Vatika Townships 367 ITR 466 (SC), Gold Coin Health 304 ITR 308 (SC) and other verdicts

There is no indication in Rule 8D to the effect that Rule 8D intended to apply retrospectively. Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of subsection (2) and subsection (3) of Section 14A as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Finance Bill, 2006 and the departmental understanding as reflected by Circular dated 28.12.2006, we are of the considered opinion that Rule 8D was intended to operate prospectively.

CIT vs. Bengal Finance & Investments Pvt. Ltd (Bombay High Court)

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DATE: February 10, 2015 (Date of pronouncement)
DATE: January 5, 2018 (Date of publication)
AY: 2007-08
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S. 14A/ 115JB: Amount disallowed u/s 14A of the Act cannot be added to arrive at book profit for purposes of section 115JB of the Act

The impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT in ITA No. 3850/Mum/2010 to held that an amount disallowed under Section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue’s Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law

Pest Control India Pvt Ltd vs. DCIT (ITAT Mumbai)

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DATE: October 31, 2017 (Date of pronouncement)
DATE: December 30, 2017 (Date of publication)
AY: 2012-13
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S. 14A/ Rule 8D: By no stretch of imagination can s. 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. Also, the disallowance cannot exceed the exempt income

The Hon’ble Delhi High Court in the case of Joint Investment Private Limited in ITA.No. 117/15 dated 25.02.2015 held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. Similarly, Punjab and Haryana High court in the case of PCIT v. Empire Package Private Limited in ITA.No. 415/2015 held that disallowance should not exceed exempt income

ACIT vs. Af-taab Investment Company Limited (ITAT Mumbai)

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DATE: November 16, 2017 (Date of pronouncement)
DATE: November 30, 2017 (Date of publication)
AY: 2010-11
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CITATION:
S. 14A/ Rule 8D: Imp principles law down reg (i) disallowance for single segment companies being investors and dealers in shares and having to incur all business expenses under normal circumstances, (ii) strategic investments, (iii) securities held as stock-in-trade, (iv) inclusion of securities which have not yielded any exempt income and (v) whether diminution in value of securities constitutes "expenditure" for disallowance

Strategic investments/stock in trade have to be excluded for computing disallowance under 14A. The AO should keep in mind that the assessee is a single segment company being an investor and dealer in shares & securities and consequently all the business expenses ought to have been incurred towards this segment under normal circumstances unless otherwise shown

Pr CIT vs. Reliance Capital Asset Management Ltd (Bombay High Court)

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DATE: September 19, 2017 (Date of pronouncement)
DATE: October 3, 2017 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A/ Rule 8D: The AO is not entitled to make any disallowance under Rule 8D if he does not specifically record that he is not satisfied with the correctness of the assessee's claim. The fact that the CIT(A) and ITAT were not satisfied with the assessee's disallowance and enhanced it does not mean that Rule 8D becomes applicable and the disallowance should be computed as per the prescribed formula

The Assessing Officer did not specifically record that he is not satisfied with the correctness of the claim of the assessee in respect of the expenditure in relation to the income which does not form part of the total income under the Act. However, he felt obliged and going by the presence of Rule 8D that once Section 14A is attracted, the disallowance is to be made as per Rule 8D only which has been prescribed by the Legislature. The Assessing Officer has not adverted to the plain language of subsection (2) of Section 14A

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