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2016 (10) TMI 887 - AT - Income TaxAssessment of interest income under the head ‘Income from other sources’ - Held that:- As noticed earlier that the business of the assessee is related to information technology and IT enabled services. Hence, we do not find merit in the submissions of the assessee that the above said loan of ₹ 3 crores was given in the ordinary course of carrying on business. The assessee itself has submitted that the loan was given to M/s. Acme Housing India Pvt. Ltd., since the term loan proceeds were not immediately required. The Ld D.R has also pointed out that the lending of money is not part of business activities carried on by the assessee. Hence the interest income cannot be considered to be the business income of the assessee, since the interest corporate loan was given out of the term loan availed by the assessee for purchasing a house property, i.e., the loan has been given as the term loan was not required to be used immediately. Thus the tax authorities are justified in assessing the interest income as income of the assessee under the head ‘Income from other sources'. Interest paid on term loan set off against the interest income - Held that:- With regard to alternative contention of the assessee that the interest paid on term loan should be set off against the interest income, we are of the view that the same requires examination at the end of the AO, since the alternative contention has not been examined by him. It is not clear from the record as to how the interest expenditure relating to the term loan was treated in the books of account and how it was allowed by the AO. Disallowance made under section 14A - Held that:- As decided in the case of “Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT” [2010 (8) TMI 77 - BOMBAY HIGH COURT ] that the provisions of Rule 8D shall be applicable from assessment year 2008-09 onwards and for the earlier years the disallowance should be made on reasonable basis. The contention of the assessee that the interest free funds available with was more than the investments made and hence, no disallowance is required out of interest expenditure is acceptable. Hence the disallowance, if any, is required to be made only in respect of administrative expenses incurred in the dividend income. Accordingly, we are of the view that the disallowance of ₹ 50,000/- confirmed by Ld. CIT(A) is also on the higher side. Accordingly, we modify the order of Ld. CIT(A) and direct the AO to restrict the disallowance to 2% of the dividend income as held by Hon’ble Bombay High Court in the case of “Godrej Agrovet Ltd. vs. DCIT” (2010 (2) TMI 27 - BOMBAY HIGH COURT ). Allocation of common expenses between STPI and non-STPI units - Held that:- We notice that the assessee has not given the justification for adopting different criteria for apportioning the expenses. Hence, we are of the view that the Ld. CIT(A) was justified in rejecting the claim of the assessee that the criteria adopted by it was scientific, particularly in the case of electricity expenses, i.e., the allocation has been done on the basis of employee ratio instead of floor space used. For the allocation of Canteen expenses on the basis of employee ratio, Courier charges on the basis of Domain Name registration expenses ratio, Personal expenses on the basis of employee ratio cannot be found fault with. However, the allocation of electricity expenses, Insurance expenses, Travelling expenses, Selling & distribution expenses on the basis of employee ratio does not appear to be scientific. Similarly, the allocation of foreign exchange fluctuation on the basis of domain registration etc. does not appear to be scientific. The foreign exchange fluctuation can be linked to specific items and how it is not understandable as to how the same was treated as common expenses. At the same time, adoption of sales ratio as the basis for allocation of expenses across the board also does not appear to be correct. Accordingly we are of the view that this issue also requires fresh examination at the end of the AO.
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