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Showing contexts for: section 14a in Commissioner Of Income Tax-Iv vs Holcim India P. Ltd. on 5 September, 2014Matching Fragments
1. The following substantial question of law is proposed in these two appeals by the appellant-Revenue which pertain to the Assessment Years 2007-08 and 2008-09:-
"Whether the Income Tax Appellate Tribunal was right in deleting the disallowance under Section 14A of the Income Tax Act, 1961 amounting to Rs. 8,61,50,315/- in Assessment Year 2007-08 and Rs. 6,60,93,678/- in assessment year 2008-09 holding that no dividend income was earned by the assessee ignoring the provisions under Section 14A.
6. For the Assessment Year 2008-09, the same reasoning was adopted and followed.
7. However, the CIT(A) issued notice and called upon assessee, why Section 14A should not be invoked? The Section postulates that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of the expenditure incurred in relation to income which does not form part of the total income. Since the business of the respondent-assessee was to act as a holding company for downstream investments and as it was an accepted fact that they had incurred expenses to protect their investments and explore new avenues of investments, the provisions of Section 14A were applicable. The exact reasoning given by the CIT(A) in this regard in respect of the Assessment Year 2007-08 is as under:-
9. The said statement has left us equally confused and perplexed. Is it the Revenue‟s contention that expenditure made by investment companies should be disallowed under Section 14A of the Act as income or investment is not taxable? This is not clearly stated. We proceeded to read and examine the subsequent observations and findings of the CIT(A).
10. Thereafter, the CIT(A) has referred to the contentions of the assessee that they had not earned dividend income and therefore, Section 14A of the Act was not applicable. The CIT(A) did not agree that as no exempt income was "claimed", no disallowance under Section 14A was warranted. The CIT(A) relied on the decision of Special Bench of the Tribunal (Delhi) in the case of Cheminvest Ltd. Vs. ITO., [2009] 317 ITR (A.T.) 86. Reference was made to Maxopp Investment Ltd. Vs. CIT, [2012] 347 ITR 272 to observe that Rule 8D of the Income Tax Rules, 1962 was not applicable in the assessment year 2007-08. Judgment of the Bombay High Court in Godrej and Boyce Manufacturing Co. Ltd.Vs. DCIT, [2010] 328 ITR 81 was also quoted. As per Maxopp Investment Ltd. (supra), the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which did not form part of total income had to be first ascertained and in case, the assessee claimed that no expenditure was incurred, the Assessing Officer should verify the correctness of the claim. Where the Assessing Officer was satisfied that no expenditure was incurred, no disallowance should be made under Section 14A. In other cases, the Assessing officer would have to determine the amount of expenditure incurred in relation to the income which did not form part of the total income and the said basis had to be reasonable and based on the acceptable method of apportionment. Expounding the expression "in relation to" appearing in Section 14A as interpreted in Maxopp Investment Ltd. (supra), the CIT(A) held that the said expression could not be given a narrow meaning. The expression "in relation to" would include "in connection with" or "pertaining to". No deduction should be allowed in respect of the expenditure incurred by the assessee with the main object of earning income which did not form part of the total income. He accordingly held that disallowance under Section 14A had no relation with the "dominant and immediate connection" between the expenditure and exempt income. Thereafter, in paragraphs 5.13 to 5.15, the CIT(A) held as under:
"As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs.2,03,752/- made by the Assessing Officer was in order" .