2018 (12) TMI 410 - DELHI HIGH COURT

Quantum of disallowance u/s 14A r.w.r 8D - Held that:- The question of netting i.e. reduction of interest received from interest paid for the purpose of computation of disallowance under Rule 8D sub-rule (2) would in a given case require consideration. We would not express any firm or final opinion in this regard, as the question of quantum of deduction under Section 14A of the Act read with Rule 8D of the Rules is otherwise covered against the Revenue by decisions of the Supreme Court and this Court.

Total exempt income earned by the assessee in this year was ₹ 19 lakhs. In these circumstances, we are not required to consider the case of the Revenue that the disallowance should be enhanced from ₹ 75.89 crores to ₹ 144.52 crores. Upper disallowance as held in Principal Commissioner of Income Tax vs. McDonalds India Pvt. Ltd. [2018 (11) TMI 1057 - DELHI HIGH COURT] cannot exceed the exempt income of that year. This decision follows the ratio and judgment of the Supreme Court in the case of Maxopp Investments Ltd. vs. CIT [2018 (3) TMI 805 - SUPREME COURT OF INDIA].

There is another error made by the AO in computing the disallowance under clauses (ii) of Rule 8D (2) with reference to the formula prescribed. Numerical B in clause (ii) refers to average value of the investment, income from which does not form part or shall not form part of the total income. The Assessing Officer for numerical B in clause (ii) had taken the total value of the investment and not the investment that had yielded exempt income. The Delhi High Court in ACB India Ltd. vs. Asstt. Commissioner of Income Tax [2015 (4) TMI 224 - DELHI HIGH COURT] has held that only average value of the entire investment that does not form part of the total income is the factor which could be covered by the numerical B for computing disallowance under clause (ii) of Rule 8D(2) of the Rules.