Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2014 (10) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (10) TMI 616 - AT - Income TaxDisallowance u/s 14A r.w Rule 8D – Claim of exemption u/s 10(34) and 10(35) – Held that:- There is no scope for either inclusion or exclusion of any expenses - which method the assessee adopts, while applying rule 8D, estimation per which is based on the volume of investment yielding (or liable to yield) income not forming part of total income held during the year, i.e., is investment based (though of course would have to be capped at the total amount of expenditure incurred), rather than expense based - the law does not circumscribe the estimation of the expenditure incurred by the assessee in relation to - implying a proximate nexus therewith, income not forming part of the total income, to any particular or one method or formulae - When it is said that rule 8D is mandatory (i.e., AY 2008-09 onwards), all that is meant is where the said expenditure cannot be reasonably ascertained with reference to the assessee's accounts, toward which the AO is to issue his satisfaction or, as the case may be, dissatisfaction, he has no discretion in case of the latter in formulating a method of his own, nor indeed has the assessee, and is bound to adopt the prescription of rule 8D. The assessee has in restricting the disallowance to ₹ 4 lacs, i.e., the interest on borrowed capital availed to fund its investments made during the year, confused between the interest cost directly relatable to such investment, which is a subject matter of rule 8D(2)(i), and that indirectly relatable to such investment, estimation of which is governed by rule 8D(2)(ii) – relying upon The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - there was no basis to the Revenue's claim as made before it, so that the Revenue's appeal was dismissed. The assessee has also earned interest income – the income is on long term investments and on loans forming part of current assets - The entire interest income is offered as, and admittedly, business income - the fact of earning of interest income would in our view be by itself of little consequence - There is no claim, which would, where so, though need to be established, of the interest being on borrowings which stood relent on interest - no nexus had been established between borrowed funds and investments by the assessee in dividend yielding shares/income yielding mutual funds - the assessee had utilized its own funds for the purpose of making the investments - the assessee has utilized its own funds in making the investments would not be dispositive of the question as to whether the assessee had incurred expenditure in relation to the earning of such income - Even if the assessee has utilized its own funds for making investments which have resulted in income which does not form part of the total income under the Act, the expenditure which is incurred in the earning of that income would have to be disallowed. Adjustment of amount disallowed u/s 14A – Computation of book profits u/s 115JB – Hedl that:- The disallowance u/s.14A is not qua notional, but actual expenditure - The only adjustment is that the expenditure shall have to be valued at the amount as per the assessee's books, so that where there is a difference, as in the case of depreciation, or the loss on the sale of assets, etc., it is the latter, i.e., the book value, which shall prevail - The expenditure disallowed u/s.14A is only that incurred and claimed by the assessee in respect of dividend income, exempt u/s 10 - the amount disallowed u/s.14A provides a ready basis for determining the amount of such expenditure is another matter. Loss on write off as receivable – Allowable u/s 36(1)(vii) or section 37(1) – Held that:- What the assessee in effect claims is the loss, on perceiving the amount as no longer receivable in view of the ceasure of some business/es, on reorganization, so that the same would henceforth be carried on by another group concern/s - The claim is u/s.28 and not either u/s. 36(1)(vii) or section 37(1) - What all therefore the assessee has to demonstrate is an honesty of its intent in effecting the write off - nothing more and nothing less – it could not be viewed as to how the write off does not represent a honest assessment by the management of the amount being no longer receivable, so that the write off would qualify for deduction on the ground of prudence - It may well be that circumstances may arise in future making available the credit of input available to the assessee; there being no time bar for the claim of the same - If and when claimed, the same would stand to be brought to tax as income for the relevant year - the assessee is bound to maintain accounts so as to reflect the true and fair view of its affairs, and any future adjustment, if any, would therefore find due reflection therein – thus, the contention of the assessee is upheld. Computation of book profits u/s 115JB – Held that:- The write off to be in pursuance to an accounting policy which is in conformity with the fundamental accounting principles as advocated by the Accounting Standards issued by the ICAI (so that it is in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956) as well as by CBDT – there was no merit in confirming the adjustment in computing the book profit u/s 115JB – Decided partly in favour of assessee.
|