Disallowance under sec 14A cannot exceed dividend income and rebate can be allowed only when there is some liability to income tax

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
During the assessment proceeding the AO found that the assessee had shown dividend income of Rs.5,60,809/- which was claimed as exempt. AO found that the assessee had not allocated any expenditure incurred by him towards earning of the tax-exempt-dividend-income. After obtaining explanation from the assessee AO made an addition amounting to Rs.19.34 lakhs u/s.14A r.w.s. 8-D. The assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submissions of the assessee he held that the assessee had not maintained separate accounts of expenses incurred for earning of exempt income, that the assessee had not maintained separate accounts of expenses incurred for earning of exempt income, that assessee had also not maintained any separate records on account of expenditure having been incurred for earning of dividend income, that the appellant had failed to produce any cash flow statement or any other material which could establish that borrowed fund had not been utilised for earning of exempt income, that merely on the basis of balance of own fund and borrowed fund as on the date of the balance sheet it could not be presumed that borrowed fund had not been utilized for earning of exempt income, that the appellant’s contention that no expenditure had been incurred to earn exempt income was not acceptable, that the assessee being a share trade undertook transactions of share which subsequently yielded dividend of capital gain and same was exempt, that the expenses including interest and administrative expenses debited to Profit and Loss Account included expenditure incurred for undertaking transactions of shares which yielded exempt income. FAA partly allowed the appeal filed by the assessee. It is simple and plain that rebate can be allowed only when there is some liability to income tax. If there is no such liability, according to the relevant provisions, the otherwise eligible rebate becomes unavailable. This position can be viewed from another angle also. Section 88,which also falls under part A of the same chapter provides for rebate on life insurance premium and contribution to provident fund etc. Under this section an assessee is entitled to deduction of an amount equal to 20% of the payment of eligible sums subject to Rs. 1 lakh. This rebate is allowable against the amount of income tax on the total income of the assessee. This provision is similar to section 88E, to the extent of providing rebate against the amount of income tax. Take a situation in which albeit the assessee has paid life insurance premium etc., which otherwise entitle him to rebate under section 88E,but there is no income chargeable to tax. In such a case, there is no possibility to allow any rebate notwithstanding the fact that life insurance premium was paid by the assessee on which rebate is otherwise available under section 88E of the income tax act

Citation :
Shri Manish D. Innani C-803, Avon Majesty, Datta Pada Road, Opp. Tata SSL, Borivali (East ), Mumbai -400 066 PAN No. AABPI 4219 C (Appellant) Vs. ACIT, Range 4(1), 640, 6t h f loor, Aayakar Bhavan, M. K. Road, Mumbai -400 020 (Respondent)