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2020 (11) TMI 277 - BOMBAY HIGH COURTDisallowance u/s 14A r.w.s 8D - method of calculation of disallowance - profits and gains of business or profession are taxed after deducting expenditure from income - Is the Tribunal right in deleting the additions made by the AO under section 14 A of the IT Act, read with Rule 8D? - HELD THAT:- Tribunal noted that the AO only discussed the provisions of section 14A(l) but has not justified how the expenditure the Assessee incurred during the relevant year related to the income not forming part of its total income. AO, according to the Tribunal, straightaway applied Rule 8D. Indeed, there must be a proximate relationship between the expenditure and the tax-exempt income. Only then would a disallowance have to be effected. This Court, we may note, on more than one occasion, has held that the onus is on the Revenue to establish that there is a proximate relationship between the expenditure and the exempt income. That is, the application of section 14A and rule 8D is not automatic in each and every case, where there is income not forming part of the total income. No doubt, the expenditure under section 14A includes both direct and indirect expenditure, but that expenditure must have a proximate relationship with the exempted income. Surmise or conjecture is no answer. Reiterate that before rejecting the disallowance computed by the Assessee, the Assessing Officer must give a clear finding with reference to the Assessee’s accounts as to how the other expenditure claimed by the Assessee out of the non-exempt income is related to the exempt income. no valid reasons to upset the Tribunal’s well-reasoned judgment on this substantial question of law - Decided against revenue. Addition as capital expenditure - Is the Tribunal right in deleting the addition made by the AO on account of capital expenditure? - HELD THAT:- In LH. Sugar Factory and Oil Mills [1980 (8) TMI 1 - SUPREME COURT] has concluded that if the advantage consists merely in facilitating the assessee’s business operations or enabling management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Thus, guided precedentially by all the above decisions, Salgaocar Mining Industries [2019 (7) TMI 707 - BOMBAY HIGH COURT] has accepted the Respondent-Assessee’s contention that it is revenue expenditure. So must it be here. We see no other compelling reason to take a different stand. - Decided against revenue.
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