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2014 (1) TMI 1412 - AT - Income TaxDisallowance of interest under section 14A of the Act – Held that:- No strong grounds have been advanced by the departmental authorities to discard the method adopted by the assessee in disallowing the interest under section 14A of the Act - There can be no dispute that since the amount of interest debited to the Profit and Loss Account is on net basis, the disallowance of interest should also be made only with reference to the net interest, as was done by the assessee - it is not proper to take into consideration only the value of investments and assets as on 31.03.2001 since interest is paid on funds utilized during the entire period between 31.03.2000 and 31.03.2001 and the more appropriate method is to average the funds position as on these two dates and apply section 14A with reference to the average value - Rule 8D of the Income Tax Rules does recognize the averaging method. Reference may be made to Sub- Rule (2) of the Rule, which speaks of average value of the investment - the disallowance of the interest as made by the assessee is adequate and appropriate and no further disallowance is called for – Decided in favour of Assessee. Disallowance of professional fees – Held that:- There is also no evidence adduced by the assessee to show what exactly were the services rendered by Ms Naina Lal Kidwai so as to justify the professional fees, as found by the CIT(A) - the burden is on the assessee to reveal what information was given to it by Ms Naina Lal Kidwai, which would facilitate its business operations in India – Relying upon Lachminarayan Madan Lal vs. CIT [1972 (9) TMI 4 - SUPREME Court] - the mere existence of an agreement between the parties is not conclusive or decisive of the question whether the payment of commission or professional fees is allowable or not and it is for the assessee to prove that the commission or fees was paid for services which were connected to the assessee’s business and which were actually rendered - the assessee failed to discharge its burden – Decided against Assessee. Deduction u/s 80HHE of the Act - The Assessing Officer has not expressed any opinion on this point because according to his calculation the figure of business profits was negative and, therefore, even at the threshold the assessee’s claim could not be entertained - the Assessing Officer ought to have taken only the profits of the back office support services for computing the deduction under section 80HHE of the Act - What would be the export turnover and the total turnover is not the subject matter of the present appeal – Decided in favour of Assessee. Whether, while applying sub-section (3) and the formula prescribed therein, the expression “profits of the business” should mean only the profits of the eligible business or the profits of all the businesses carried on by the assessee – Held that:- Relying upon Datamatics Ltd. vs. ACIT[2007 (2) TMI 237 - ITAT BOMBAY-H] - it is only the profits of the export business that have to be so apportioned and the profits of businesses which did not qualify for the deduction, which were also carried on by the assessee, cannot be held eligible for the deduction - The departmental authorities were not correct in taking the profits of the eligible business - They ought to have taken the figure as contended for by the assessee, which figure represents the profits of the back office support services, which in other words are the profits of the eligible business. Disallowance of expenses – stock broking activities – Held that:- It cannot be said to be capital expenditure because the loss arises in the course of the carrying on of the business - The CIT(A) has also held that there was no agreement between the assessee and the clients that the assessee was responsible for such losses - The assessment of such recoveries under the head “Business” is under a deeming provision – the decision in CIT vs. Rampur Timber & Turnery Co. Ltd. [1971 (11) TMI 38 - ALLAHABAD High Court ] followed - despite the fact that some recovery of brokerage relating to the discontinued stock broking business is brought to tax under section 41(1)(a) of the Act, the assessee is not entitled to claim any expenditure against the said receipt - There is no evidence of any business considerations involved in the act of the assessee - no expenditure can be claimed against receipts assessed as profits of the business under section 41(1)(a) of the Act – Decided against Assessee.
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