On an appeal against the order of the ITAT, the Delhi High Court opined that the question of attributing any expenditure cannot arise if the tax exempted income was earned without the interference of any employee but rather through the solicitation and advertisement of the bank.
The assessee, in the instant case has filed return reporting exempt dividend income without claiming deduction towards the expenditure for earning that income. The assessing officer, as per section 14A read with Rule 8D of the Income Tax Rules added a sum of 1,21,805/- towards the taxable income on account of statutory disallowance. The assessee claimed that the methodology adopted and entire approach of the revenue is foul since the bulk of the tax exempted income was earned interest which was credited to the bank account and also with respect to the dividends earned went straight into the personal bank account without the interaction of any special personnel. The Revenue, on the other hand, defended the above contentions by stating that the assessee during the course of its business, engaged an accountant for the purpose of looking after the accounts and investments which yielded a sum of `10,87,898/-.
The Court noticed the decision in Taikisha Engineering Private Limited’s case, in which it was held that “section 14A (2) of the Act and rule 8D (1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred toearn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee is not satisfactory, computation under subrule (2) to rule 8D of the Rules is to be made.”
Following the above decision, the Court observed that “In the present case, we notice that the AO has not analysed objectively in terms of the decision in Shah. It was firstly incumbent upon him to in fact examine the accounts closely and determine if at all any expenditure could be ascribed to the tax exempt dividend/interest earned by the assessee. If indeed the tax exempted income was earned without the interference of any employee but rather through the solicitation and advertisement of the bank the question of attributing any expenditure cannot arise at all.”
While concluding the Court opted to remand the matter to Assessing Officer with a direction to consider the matter afresh The Court further directed the AO to reconsider the matter according to the decision in Taikisha Engineering Private Limited’s case.
Read the full text of the order below.
