CIT vs Sociedade De Fomento Industrial Pvt Ltd
The Respondent-Assessee mines and exports mineral ores. It filed e-return in September 2009 declaring a total income of 478,26,51,845/-. The Assessment Officer processed the income u/s143(1) and scrutinised the account under CASS. The AO notified the Assessee u/s143(2) and heard its representative u/s 129. The AO took the view that section 14A clearly applied to the Assessee’s case and accordingly invoked Rule 8D and computed the disallowance. Kanga & Palkhiwala takes note of the latest amendment under the Finance Act, 2020: that dividend distribution tax has been deleted.
As long as the income is taxed, it should not attract section 14A. The Tribunal noted that the AO only discussed the provisions of section 14A(l) but has not justified how the expenditure the Assessee incurred during the relevant year related to the income not forming part of its total income. The AO, according to the Tribunal, straightaway applied Rule 8D. A proximate relationship between the expenditure and the tax-exempt income has to be established for a disallowance to be effected. the onus is on the Revenue to establish that there is a proximate relationship between the expenditure and the exempt income. That is, the application of section 14A and rule 8D is not automatic in each and every case, where there is income not forming part of the total income.
Bombay HC further reiterates that before rejecting the disallowance computed by the Assessee, the Assessing Officer must give a clear finding with reference to the Assessee’s accounts as to how the other expenditure claimed by the Assessee out of the non-exempt income is related to the exempt income.