Even if assessee has not earned any income which is not includible in total income, provisions of section 14A can still be invoked to disallow expenditure relatable to income not includible in total income
Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income - Assessment year 2008-09 - Whether earning of an income in a particular year is not a sine qua non for allowing an expenditure; and, thus, income may be 'nil', yet expenditure incurred in pursuit of earning such income is deductible - Held, yes - Whether similar proposition will apply while interpreting provision contained in section 14A(1) - Held, yes - Whether, therefore, in absence of an income which is not includible in total income, provision of section 14A can still be invoked to disallow expenditure relatable to income not includible in total income - Held, yes - Whether, however, there cannot be an assumption of some kind of in-built expenditure; some facts must be there on record to show that expenditure was actually incurred in relation to earning of exempt income - Held, yes - Assessee had made certain investments, income wherefrom was exempt - Assessing Officer disallowed expenditure incurred for earning said income under section 14A - Assessee claimed that no expenditure had been incurred for earning exempt income - Commissioner (Appeals), however, upheld order of Assessing Officer on assumption that whenever exempt income is earning, there will be some expenditure incurred in relation thereto - Whether such an assumption by Commissioner (Appeals) could not form basis for making disallowance under rule 8D - Held, yes - Whether both Assessing Officer and Commissioner (Appeals) had not examined assessee's claim at all and had not followed provisions of section 14A(1) - Held, yes - Whether, therefore, disallowance under section 14A could not be upheld - Held, yes [In favour of assessee]
Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income - Assessment year 2008-09 - Whether earning of an income in a particular year is not a sine qua non for allowing an expenditure; and, thus, income may be 'nil', yet expenditure incurred in pursuit of earning such income is deductible - Held, yes - Whether similar proposition will apply while interpreting provision contained in section 14A(1) - Held, yes - Whether, therefore, in absence of an income which is not includible in total income, provision of section 14A can still be invoked to disallow expenditure relatable to income not includible in total income - Held, yes - Whether, however, there cannot be an assumption of some kind of in-built expenditure; some facts must be there on record to show that expenditure was actually incurred in relation to earning of exempt income - Held, yes - Assessee had made certain investments, income wherefrom was exempt - Assessing Officer disallowed expenditure incurred for earning said income under section 14A - Assessee claimed that no expenditure had been incurred for earning exempt income - Commissioner (Appeals), however, upheld order of Assessing Officer on assumption that whenever exempt income is earning, there will be some expenditure incurred in relation thereto - Whether such an assumption by Commissioner (Appeals) could not form basis for making disallowance under rule 8D - Held, yes - Whether both Assessing Officer and Commissioner (Appeals) had not examined assessee's claim at all and had not followed provisions of section 14A(1) - Held, yes - Whether, therefore, disallowance under section 14A could not be upheld - Held, yes [In favour of assessee]
The case of the assessee is two fold (i) no income has been earned and, therefore, no expenditure can be disallowed; and (ii) the Assessing Officer has not brought any evidence on record to show that any expenditure was incurred in relation to earning the income which was not includible in the total income. [Para 2]
As regard the first issue, none of the parties has cited any case. Therefore, the issue is to be decided on the basis of statutory language and general principles of interpretation of law. Sub-section (1) of section 14A contains a provision to the effect that for the purpose of computing the total income under chapter IV, 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 this Act. The factual position in this case is that no such income is statedly earned in this year although interest on NSCs has accrued as per the terms and conditions. Other investments may not have yielded income in this year but are capable of yielding the income. The question is whether the word 'income' should be interpreted narrowly or widely? The narrow interpretation would be that only when such income is actually earned, the expenditure can be disallowed. The wider meaning would be that even if no income is earned in a particular year but the investments are capable of earning the income, the expenditure relatable to holding of the investments becomes disallowable. In this connection, a reverse provision contained in section 57(iii) may be examined, which allows the deduction of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly or exclusively for the purpose of making or earning such income from income chargeable under the head 'income from other sources'. There are a number of decisions which hold that the earning of the income in a particular year is not sine qua non of allowing expenditure. Thus, the income may be nil, yet the expenditure incurred in pursuit of earning such income is deductible. Similar proposition will apply while interpreting the provision contained in section 14A(1). Therefore, the first line of argument of assessee is disagreed with. [Para 3.1]
[2012] 18 taxmann.com 333 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'F'
Relaxo Footwears Ltd.
v.
Additional Commissioner of Income-tax, Range-15, New Delhi*
R.P. TOLANI, JUDICIAL MEMBER
AND K.G. BANSAL, ACCOUNTANT MEMBER
IT APPEAL NO. 4645(DELHI) OF 2011
[ASSESSMENT YEAR 2008-09]
JANUARY 6, 2012
No comments:
Post a Comment