Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (6) TMI 1063 - AT - Income TaxDisallowance made u/s 14A - As contended before the A.O. that it did not incur any expenditure to earn the exempt income - AO Computed the disallowance under Rule 8D consisting of interest disallowance under Rule 8D(2)(ii) of the Act and expenses disallowance under Rule 8D(2)(iii) HELD THAT:- We notice that the own funds available with the assessee was ₹ 355.57 crores while the value of investment in partnership firm mutual funds and shares aggregated to ₹ 251.82 crores. In view of the decision rendered by Hon’ble Karnataka High Court in the case of CIT Vs. Micro Labs Ltd. [2016 (4) TMI 219 - KARNATAKA HIGH COURT] no disallowance out of interest expenditure is called for - we confirm the deletion of disallowance of interest expenses of 8D(2)(ii) of IT Rules. Disallowance out of expenditure under rule 8D(2)(iii) - We notice that CIT(A) has deleted the disallowance by accepting the submissions of the assessee that the assessee has cross charged a sum of ₹ 1.19 crores out of operating and other expenses to the respective partnership firms. We are unable to agree with the view of Ld CIT(A) on this aspect. The cross charging of expenses is normally made in respect of services/facilities availed by one concern from another concern, Accordingly, the amount of ₹ 1.19 crores cross charged by the assessee to other concerns, would represent facilities/services availed by the partnership firms from the assessee. Object of provisions of section 14A of the Act is to disallow expenses relatable to exempt income, i.e., it is required to segregate the expenses debited to the Profit and Loss account as relatable to “taxable income” and “exempted income”. Hence, what is required to be considered for the purpose of section 14A of the Act is the amount finally debited to profit & loss account. The actual expenses incurred by the assessee would have been reduced by the amount cross charged to the partnership firms and the net amount would have been charged to the profit & loss account. The disallowance u/s 14A of the Act is called for out of the above said net amount. Provisions of rule 8D need not be applied for computing the disallowance out of general expenditure. Accordingly, we are of the view that a lumpsum disallowance of ₹ 15 lakhs may be made out of general expenditure and the same, in our view would meet the requirements of section 14A of the Act. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to restrict the disallowance under 14A of the Act to ₹ 15 lakhs. Appeal filed by the revenue is partly allowed
|