Search Results For: Rule 8D


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)
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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.

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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CITATION:
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

H. T. Media Limited vs. Pr CIT (Delhi High Court)

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DATE: August 23, 2017 (Date of pronouncement)
DATE: August 24, 2017 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A/ Rule 8D: Entire law explained on what constitutes proper recording of satisfaction by the AO, scope of disallowance of interest expenses under Rule 8D(2)(i), admin expenses under Rule 8D(2)(iii), need for nexus between borrowed funds and tax-free investments and power of the ITAT to remand to the AO

In order to disallow this expense the AO had to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee’s claim of Rs. 3 lakhs being the administrative expenses. This was mandatorily necessitated by Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules. Consequently on the aspect of administrative expenses being disallowed, since there was a failure by the AO to comply with the mandatory requirement of Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules and record his satisfaction as required thereunder, the question of applying Rule 8D (2) (iii) of the Rules did not arise

ACIT vs. Vireet Investment Pvt Ltd (ITAT Delhi) (Special Bench)

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DATE: June 16, 2017 (Date of pronouncement)
DATE: June 22, 2017 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A/ Rule 8D: (i) The computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962, (ii) Only those investments are to be considered for computing the average value of investment which yielded exempt income during the year

(i) The computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income tax Rules 1962. (ii) Only those investments are to be considered for computing the average value of investment which yielded exempt income during the year.

Kalyani Barter (P) Ltd vs. ITO (ITAT Kolkata)

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DATE: March 3, 2017 (Date of pronouncement)
DATE: April 10, 2017 (Date of publication)
AY: 2010-11
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CITATION:
A disallowance u/s 14A & Rule 8D has to be made even in respect of securities that are held as stock-in-trade by the assessee. However, the disallowance has to be computed by taking into consideration only those shares which have yielded dividend income in the year under consideration

The object of s. 14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income. There is no dispute that part of the income of the assessee from its business is from dividend which is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which shares were acquired. The mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares

Shapoorji Pallonji & Co. Ltd vs. DCIT (ITAT Mumbai)

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DATE: March 3, 2017 (Date of pronouncement)
DATE: March 11, 2017 (Date of publication)
AY: 2011-12
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CITATION:
S. 14A & Rule 8D: Disallowance under Rule 8D is not compulsory or mandatory. S. 14A(2) & Rule 8D cannot be invoked unless the AO examines the accounts and records the finding why the assessee's claim/ computation is not proper (entire law discussed and important judgements referred)

Thus, Rule 8D is not attracted and applicable to assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or ‘nil’ disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction under Rule 8D of the Rules. This pre-condition and stipulation as noticed below is also mandated in sub Rule (1) to Rule 8D of the Rules

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