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Critical Issues : Section 14A & Rule 8D

CA ROHAN SOGANI. Critical Issues : Section 14A & Rule 8D. Basic Principle Of Taxation. EXPENSES. Net Income to be taxed : Gross Income – Expenditure (related). EXEMPT INCOME. TAXABLE INCOME. NO DEDUCTION. DEDUCTION ALLOWED. CA Rohan Sogani. Why Section 14A ???.

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Critical Issues : Section 14A & Rule 8D

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  1. CA ROHAN SOGANI Critical Issues :Section 14A & Rule 8D

  2. Basic Principle Of Taxation EXPENSES Net Income to be taxed : Gross Income – Expenditure (related) EXEMPT INCOME TAXABLE INCOME NO DEDUCTION DEDUCTION ALLOWED CA Rohan Sogani

  3. Why Section 14A ??? BASIC PRINCIPLE OF TAXATION INCOME ` 2,000 EXEMPT SOURCES ` 1,000 NON- EXEMPT SOURCES ` 1,000 EXPENSE `200 EXPENSE `300 Taxable Income ` 500 or ` 700 ???? CA Rohan Sogani

  4. Birth Of Section 14A Rajasthan State Warehousing Corporation (2000) 242 ITR 450 (SC) RRRR Letting of Godowns & Warehouses (Exempt u/s 10(29)) Income Interest & Adm. Charges (Taxable) INDIVISIBLE BUSINESS CA Rohan Sogani

  5. Past Judgment Maharasthra Sugar Mills Ltd (1971) 82 ITR 452 (SC) Supreme Court : • Dpt. wrong in providing deductions only for expenses giving rise to taxable income • Deduction governed by relevant provisions of Act Cultivation of Sugar Cane (Exempt) Manufacturing of Sugar Cane (Taxable) INDIVISIBLE BUSINESS Indian Bank Ltd. (1965) 56 ITR 77 (SC) Raja (MSP) (1976) 105 ITR 295 (Mad) CA Rohan Sogani

  6. Chain of Events Section 14A Finance Act, 2001 w.r.e.f. 1st April 1962 Circular No. 14 of 2001, Dated 12th December 2001 Assessments Proceedings Final before 1st April 2001 Not to be reopened u/s 147 Proviso to Subsection 1 (inserted by Finance Act 2002. wref 11/5/2001) Intention of Proviso Set existing controversy at rest (Circular 8 of 2002) Not to unsettle the cases CA Rohan Sogani

  7. Section 14A : Position as on Date CA Rohan Sogani

  8. Rule 8D IT ( Fifth Amdt.) Rules, 2008 w.e.f. 24th March, 2008 Rule 8D(2) CA Rohan Sogani

  9. Rule 8D(2) : Relevant Calculations CA Rohan Sogani

  10. Rule 8D(2) : Can be Harsh..!!! CA Rohan Sogani

  11. Oscillating Onus 14A & 8D : Only Option ?? • Assessing Officer • Assessee CA Rohan Sogani

  12. Onus Discharged by Assessee Identify expenses incurred in relation to exempt income No expenses incurred Expenses Identifiable Expenses not Identified Disallow certain portion on reasonable basis Make voluntary disallowance No disallowance Disclose the working & reason Onus Discharged CA Rohan Sogani

  13. Onus shifts to AO CA Rohan Sogani

  14. Judicial Precedence CA Rohan Sogani

  15. Rule 8D or Reasonable Method? CA Rohan Sogani

  16. Conclusion till now CA Rohan Sogani

  17. Exempt Income but No Expenditure...???? c CA Rohan Sogani

  18. Exempt Income but No Expenditure ..???? (Conti..) CA Rohan Sogani

  19. No Exempt Income?? No Disallowance CA Rohan Sogani

  20. No Exempt Income??No Disallowance (Conti..) • Winsome Textile Industries Limited [2009] 319 ITR 204 (PH) • Lakhani Marketing (PH), ITA No.970 of 2008 • Cortech Energy Pvt. Ltd. (Guj) ITATonline.org • Shivam Motors Pvt. Ltd. (All)- I.T.A. No.88/2014 • Against View : Cheminvest Ltd. [2009] 121 ITD 318 (Delhi -Trib) CA Rohan Sogani

  21. Investment from Own Funds • Issue 1 CA Rohan Sogani

  22. Investment from Own Funds(Conti..) • Issue 2 CA Rohan Sogani

  23. Investment from own funds (Conti..) • Disallowance of Indirect Interest Expense u/s 14A? - NO • Own Funds more than borrowed funds • Investment out of Share Capital/Own Funds • Nexus to be proved • BNP Paribas SA [2013] 214 Taxman 548 (Bom.) (HC) • Gujarat Power Corporation Ltd. [2013] 352 ITR 583 (Guj) (HC) • HDFC Bank Limited (Bom) (HC) [2014] • Mohan Exports (P.) Ltd. [2013] 151 TTJ 667 (Delhi - Trib) CA Rohan Sogani

  24. Term Loan – Business Purpose CA Rohan Sogani

  25. Term Loan – Business Purpose (Conti..) • Disallowance of Interest on Term Loan u/s 14A? - NO • No Disallowance on Notional Basis • Term Loan for Specific Business Activity • Nexus of Utilization • Gujarat Power Corporation Ltd. [2013] 352 ITR 583 • M/s. Best & Crompton Engineering Ltd. [2013] 60 SOT 53 (Chennai - Trib.)(URO) CA Rohan Sogani

  26. Share in Partnership Firm GROUP INVESTMENTS Interest on Borrowed funds disallowed u/s 14A • Vishnu AnantMahajan[2012] 16 ITR 621 (Ahmedabad) (SB) • Shankar Chemical Works [2011] 47 SOT 121 (Ahmedabad) CA Rohan Sogani

  27. Shares as Stock in Trade GROUP INVESTMENTS No Disallowance under Section 14A • Primary Intention : Earn out of sale of shares • Income Derived on sale of shares offered to tax • Shares remained unsold due to other reason– Not to earn dividend Income • Dividend Income : just a fall out • Expenses incurred not directly related to exempt income CCI Ltd [2012] 250 CTR 291 (Kar) CA Rohan Sogani

  28. Group Investments JV Partners • A Pvt. Ltd • (Rajasthan) D Pvt. Ltd New operations 100% Subsidiary JV B Pvt. Ltd (Madhya Pradesh) A D Pvt. Ltd CA Rohan Sogani

  29. Group Investments (Conti..) GROUP INVESTMENTS Oriental Engineers Pvt. Ltd. (Delhi) (HC) (ITAT online. Org) • Investment in Related Party • Primary Object – Holding Controlling Stake • Commercial Expediency • Long Term Nature JM Financial Ltd. (Mum) (Tribunal) Garnare Mall Ropes Ltd. (Mumbai) (Tribunal) (ITAT online. Org) CA Rohan Sogani

  30. Any queries ….. CA Rohan Sogani

  31. Contact: rohan@soganiprofessionals.com THANKYOU CA Rohan Sogani

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