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2013 (9) TMI 531 - ITAT MUMBAIDisallowance u/s 14A - Whether CIT(A) erred in deleting the disallowance made by the AO u/s 14A of the IT Act, 1961 without appreciating the fact that the assessee failed to prove that all the expenses debited to Profit & Loss Account were incurred for earning other than the income exempt from tax - Held that:- The Tribunal had not gone into merits of the case and remitted the issue to the record of the Assessing Officer because Rule 8D was not applicable as held by the Hon’ble jurisdictional High Court in the case of Godrej & Boyce Ltd v ACIT [2010 (8) TMI 77 - BOMBAY HIGH COURT]. Because the most of the investments were already made in the earlier years; however, for the Assessment Years 2002-03 to 2004-05, the issue of disallowance u/s 14A was pending before the Assessing Officer as it was remanded by the Tribunal - Therefore, to this extent, the issue for the year under consideration was remitted to the record of the Assessing Officer to work out the availability of assessee’s own funds, even if it is put into the common pool as held by the Hon’ble jurisdictional High Court in the case of Commissioner of Income-tax v. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY ]. During the year under consideration, half of the total investments of Rs.23.81 crores made by the assessee from the total sales of investment; therefore, issue of disallowance u/s 14A on account of interest expenditure had to be decided after taking into consideration the available funds from sale of investments and other own funds - As we have already made it clear that upto the Assessment Year 2001-02, the issue had been allowed by the Tribunal and therefore, no disallowance can be made for the investments made upto Assessment Year 2001-02. Disallowance of Interest Expenses - Whether CIT(A) erred in deleting the disallowance out of interest expenses in respect of interest free advances to subsidy company without appreciating that the issue of business expediency was not proved by the assessee - Held that:- The assessee made interest free advance to its subsidiary company which was incorporated for doing life insurance business - The assessee’s group was carrying general insurance business and the main activity of the assessee was that of financing - The Hon’ble Supreme Court in the case of S.A.Builders Ltd. Vs. CIT [2006 (12) TMI 82 - SUPREME COURT ] - wherein interest bearing funds were lent to the sister concern without interest, the A.O. needed to examine the purpose of loan - If the loan was advanced for commercial expediency and not utilized by the Directors of the sister concern for their personal benefit, then the deduction of interest had to be allowed - the learned CIT(A) had rightly relied on this judgement in deleting this addition. Addition to the Book Profits computed u/s 115JB being the Expenses Disallowed u/s 14A – Held that:- The principle of apportionment as provided u/s 14A cannot be applied while computing the book profit u/s 115JB - However, the Assessing Officer had power and jurisdiction to make the adjustment as provided under Explanation 1 - Accordingly, in our view the amount of expenditure which is directly relatable to the income, which was exempted u/s 10, 11 and 12 shall be adjusted for the purpose of computing the book profit - Hence, this issue was required to be examined and considered afresh for making the adjustment only to the extent of actual expenditure incurred in respect of the earning of income claimed as exempt.
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