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2021 (6) TMI 1082 - ITAT PUNEDisallowance of expenditure incurred on failed IPO (failed Public issue) - Allowable revenue expenditure or not? - HELD THAT:- The issue in the present appeal is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of Nimbus Communication Ltd. [2011 (12) TMI 696 - BOMBAY HIGH COURT] wherein the Hon’ble Jurisdictional High Court following its earlier decision in the case of M/s. Essar Oil Limited [2008 (10) TMI 649 - BOMBAY HIGH COURT] confirmed the decision of the Tribunal allowing the aborted IPO expenditure as revenue expenditure u/s 37. Similarly, the Hon’ble Madras High Court in the case of Tamilnadu Magnesite Ltd.[2018 (6) TMI 1236 - MADRAS HIGH COURT] held that the expenditure incurred for setting up of new project viz. Chemical Beneficiation Plant which is abandoned following State Government Order is allowable as revenue expenditure. Disallowance u/s 14A - contention of the appellant that no interest bearing funds were utilized for the purpose of making any investment which yielded the exempt income - HELD THAT:- We direct the Assessing Officer not to make any addition on account of interest expenditure under Rule 8D of the Income Tax Rules, 1962 (‘the Rules’). As regards to indirect expenses incurred for earning exempt income, the submission the assessee that amount of disallowance should be restricted lower of the exempt income and 0.5% of average value of investment, which yielded the exempt income / merits acceptance. It is very well settled position of law that the amount of disallowance u/s 14A cannot exceed the exempt income. While computing the amount of disallowance under clause (iii) of Rule 8D(2) of the Rules, the average value of investments which yielded the exempt income alone to be considered for the purpose of arriving at average value of investment - Therefore, this ground of appeal is remitted to the file of the Assessing Officer to calculate the amount of disallowance under clause (iii) of Rule 8D(2) on the above lines indicated above. Thus, this ground of appeal is partly allowed.
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