TMI Blog2012 (11) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred to earn income from SEZ do not merit reckoning in computing disallowance u/s 14A - Impugned order on this count is set aside and remit the matter to the file of A.O. for making disallowance u/s 14A on some reasonable basis - In the result, the appeal is partly allowed for statistical purposes. - IT APPEAL NO. 6835 (MUM.) OF 2010 - - - Dated:- 8-6-2012 - R.S. SYAL AND VIVEK VARMA, JJ. D.P. Bapat for the Appellant. M. Murali for the Respondent. ORDER R.S. Syal, Accountant Member - This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals) on 06.07.2010, in relation to the assessment year 2007-2008. 2. The only issue raised in this appeal is against confirmat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , investment in SEZ was liable to be considered for application of Rule 8D. The learned CIT(A) upheld the disallowance made by the A.O. 3. We have heard the rival submissions and perused the relevant material on record. It is noticed that the total disallowance made u/s 14A amounting to Rs. 52.15 lakh comprises of two components viz., allocation of interest at Rs. 41.90 lakh and other expenses at Rs. 10.24 lakh computed at half percent of the average investment. At the very outset, the learned Counsel for the assessee invited our attention towards the order passed by the Tribunal in assessee's own case for assessment year 2006-2007 against the appeal filed by the Revenue. Vide this order dated 31.08.2010 in ITA No.5811/Mum/2009, the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch such exempt dividend income was earned. The learned Departmental Representative was fair enough to concede that, in fact, no fresh borrowings were made by the assessee in the relevant previous year. In that view of the matter it becomes clear that the assessee did not utilize any interest bearing funds for making investment in units from which exempt dividend income was earned by the assessee. Resultantly no disallowance at Rs. 41.90 lakh as made by the assessee applying Rule 8D could have been made. 4. It is relevant to note that Rule 8D has been inserted by the Income-tax (5th Amendment) Rules, 1988 with effect from 24.03.2008. The Hon'ble jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer, as approved in the first appeal, is without any bedrock. The obvious reason is that section 14A provides that : " .. no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act". Here it is important to note that the expenditure disallowable u/s 14A is in respect of the items of exempt income and not which qualify for deduction under any provision. Income of developer of a SEZ from its operation is deductible u/s 80IAB as well as section 10AA. Under both these provisions, the Legislature has used the word "deduction" and not 'exemption'. Even though section 10AA falls in Chapter III with the caption : "Incomes which do not form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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