Cheminvest Ltd. v. ITO & Anr.

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The Tax Publishers2013 TaxPub(DT) 0784 (Del-Trib) : (2013) 050 (II) ITCL 0352 INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt income Interest on borrowing estimated on pro rata basisAssessing officer observed that assessee had paid certain amount of interest on borrowed sum and also noted that out of such unsecured loan, certain amount was invested in shares which was shown as investment for the purpose of long-term capital gain. Assessing officer thus, on pro rata basis ascertained the amount of interest being attributable to the earning of exempt dividend income and disallowed the same under section 14A. Assessee contended that it had not received any dividend during the year, hence there was no exempt income and investment in shares out of borrowed funds was not made for the purpose of earning dividend income but to earn the appreciation by way of capital gain, therefore, the matter was required to go back to the file of assessing officer for deciding it in the light of Maxopp Investment Ltd. v. CIT 203 Taxman 364). Held: Rightly so, as sub-sections (2) and (3) of section 14A and rule 8D would operate prospectively from assessment year 2007-08 onwards and for prior to that period whenever issue of section 14A arose before assessing officer, he had, first of all, to ascertain correctness of claim of assessee in respect of expenditure incurred in relation to income which did not form part of total income under Act and if he was satisfied on an objective analysis and for cogent reason that amount of such expenditure as claimed by assessee was not correct, he was required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. Therefore, following the decision in Maxopp Investment Ltd. v. CIT (supra) the matter was remitted back to assessing officer for reconsideration of the issue afresh after giving due opportunity to assessee. Income Tax Act, 1961, Section 14A Income Tax Rules, 1962, Rule 8D In the ITAT, Delhi B Bench U. B. S. Bedi, J.M. & T. S. Kapoor, A.M. Cheminvest Ltd. v. ITO & Anr. ITA No. 87/Del./2008 & ITA No.4788/Del./2007 A.Y. 2004-05 SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0784 (Del-Trib) : (2013) 050 (II) ITCL 0352

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt income Interest on borrowing estimated on pro rata basisAssessing officer observed that assessee had paid certain amount of interest on borrowed sum and also noted that out of such unsecured loan, certain amount was invested in shares which was shown as investment for the purpose of long-term capital gain. Assessing officer thus, on pro rata basis ascertained the amount of interest being attributable to the earning of exempt dividend income and disallowed the same under section 14A. Assessee contended that it had not received any dividend during the year, hence there was no exempt income and investment in shares out of borrowed funds was not made for the purpose of earning dividend income but to earn the appreciation by way of capital gain, therefore, the matter was required to go back to the file of assessing officer for deciding it in the light of Maxopp Investment Ltd. v. CIT 203 Taxman 364). Held: Rightly so, as sub-sections (2) and (3) of section 14A and rule 8D would operate prospectively from assessment year 2007-08 onwards and for prior to that period whenever issue of section 14A arose before assessing officer, he had, first of all, to ascertain correctness of claim of assessee in respect of expenditure incurred in relation to income which did not form part of total income under Act and if he was satisfied on an objective analysis and for cogent reason that amount of such expenditure as claimed by assessee was not correct, he was required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. Therefore, following the decision in Maxopp Investment Ltd. v. CIT (supra) the matter was remitted back to assessing officer for reconsideration of the issue afresh after giving due opportunity to assessee.

Income Tax Act, 1961, Section 14A

Income Tax Rules, 1962, Rule 8D

In the ITAT, Delhi B Bench

U. B. S. Bedi, J.M. & T. S. Kapoor, A.M.

Cheminvest Ltd. v. ITO & Anr.

ITA No. 87/Del./2008 & ITA No.4788/Del./2007

A.Y. 2004-05