Rule 8D has to be made even if the assessee has not earned any tax-free income on the investment. AO rbi circular on forex hedging it is a non-jurisdictional High Court.
The principle that it is the net income, i. Rule 8D – Applicability to shares held for controlling interest or as stock-in-trade: The argument that S. Rule 8D will not apply if the “dominant intention” of the assessee was not to earn dividends but to gain control of the company or to hold as stock-in-trade is not acceptable. 14A applies irrespective of whether the shares are held to gain control or as stock-in-trade. The first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment.
We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. There is no indication in Rule 8D to the effect that Rule 8D intended to apply retrospectively. Section 14A as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Finance Bill, 2006 and the departmental understanding as reflected by Circular dated 28. 2010 to held that an amount disallowed under Section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. Court in Income Tax Appeal No. 438 of 2012 rendered on 7th August, 2014.
Rule 8D: By no stretch of imagination can s. 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. The Hon’ble Delhi High Court in the case of Joint Investment Private Limited in ITA. 2015 held that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. Similarly, Punjab and Haryana High court in the case of PCIT v. Empire Package Private Limited in ITA.
Rule 8D: The AO is not entitled to make any disallowance under Rule 8D if he does not specifically record that he is not satisfied with the correctness of the assessee’s claim. The Assessing Officer did not specifically record that he is not satisfied with the correctness of the claim of the assessee in respect of the expenditure in relation to the income which does not form part of the total income under the Act. However, he felt obliged and going by the presence of Rule 8D that once Section 14A is attracted, the disallowance is to be made as per Rule 8D only which has been prescribed by the Legislature. In order to disallow this expense the AO had to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee’s claim of Rs.
3 lakhs being the administrative expenses. 14A read with Rule 8D of the Income tax Rules 1962. Only those investments are to be considered for computing the average value of investment which yielded exempt income during the year. Argument that such dividends are not tax-free in the hands of the payee is not correct. 14A cannot be invoked in the absence of proof that expenditure has actually been incurred in earning the dividend income. Section 115-O of the Act and there are other species of dividend income on which tax is levied under the Act, we do not see how the said position in law would assist the assessee in understanding the provisions of Section 14A in the manner indicated. Comprehensive data archive gives you a ready access to extensive history of our forex information reports.
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