TMI Blog2013 (8) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... eover, the value adopted by the Assessing Officer is too low, when compared to the guideline value of the land at Rs. 536/- per sq. ft. as on 1.4.2007. It is after considering all these aspects that the Commissioner of Income-tax(Appeals) has adopted the fair market value at Rs. 50/- per sq. ft - Value adopted by the Commissioner of Income-tax (Appeals) is reasonable. Exclusion of interest on bank loan and term loans for the purpose of determining disallowance under Rule 8D(2)(ii) read with section 14A of the Act – Held that:- Commissioner of Income Tax (Appeals) excluded the interest on bank loan and term loans from the calculation of disallowance under Rule 8D(2)(ii) as the assessee has utilized the bank loan and term loan for the purpose of purchase of machineries and for expansion of projects and these loans were specifically sanctioned for specific project and such loans were also used for the purpose for which they were sanctioned. In the circumstances, Commissioner of Income Tax (Appeals) has rightly excluded such interest from the purview of computation of disallowance under Rule 8D(2)(ii) – Decided against the Revenue. Writing off of advances to its subsidiary compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- per sq.ft. and this valuation of Rs. 50/- per sq.ft was held to be reasonable by the co-ordinate Bench of this Tribunal in the assessee s own case for the earlier assessment year. 4. The Departmental Representative relied on the order of the Assessing Officer. 5. We have gone through the order of the co-ordinate Bench of this Tribunal in assessee s own case in ITA No.803/Mds/2012 dated 9.8.2012 and find that this issue has been decided in favour of the assessee by upholding the order of the Commissioner of Income Tax (Appeals) in fixing the fair market value of the land situated at Ambattur Industrial Estate at Rs. 50 per sq. ft. as on 1.4.1981 for the purpose of computing capital gains. While upholding the order of the Commissioner of Income Tax (Appeals), the coordinate Bench of this Tribunal in ITA No.803/Mds/2012 dated 9.8.2012 observed as under:- 4. The second issue raised by the Revenue is that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to adopt the value of the land at Ambattur Industrial Estate at Rs. 50/- per sq. ft. 5. The assessee had claimed a fair market value of Rs.108/- per sq. ft. as on 1.4.1981, while cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Rule 8D(2)(ii) while computing the disallowance under section 14A read with Rule 8D of the Act. 9. The counsel for the assessee relied on the order of the Commissioner of Income Tax (Appeals) in excluding the interest on bank loan and term loans from the purview of computation of disallowance under section 8D(2)(ii). The counsel for the assessee also placed reliance on the decision of the Calcutta Bench of this Tribunal in the case of ACIT Vs. Champion Commercial Company Ltd. in ITA No.644/Kol/2012 dated 21.09.2012 in support of the contention that interest on bank loan and term loans have to be excluded from the purview of computation of disallowance under Rule 8D(2)(ii). When such loans were not utilized for the purpose of making investments for earning tax free income. 10. Heard both sides. Perused the orders of lower authorities and the decision of Calcutta Bench of this Tribunal relied on by the assessee s counsel. This issue has been considered elaborately by the Commissioner of Income Tax (Appeals) and deleted the interest on bank loan and term loans which were not utilized for making any investments having tax free income. While holding so, the Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der rule 8D(2)(ii). The AO is, therefore, directed to take into account only the remaining interest on other accounts amounting to Rs.1,29,43,000/- for computing the proportionate disallowance under rule 80 (2)(ii). 11. On going through the order of the Commissioner of Income Tax (Appeals), we find that the Commissioner of Income Tax (Appeals) excluded the interest on bank loan and term loans from the calculation of disallowance under Rule 8D(2)(ii) as the assessee has utilized the bank loan and term loan for the purpose of purchase of machineries and for expansion of projects and these loans were specifically sanctioned for specific project and such loans were also used for the purpose for which they were sanctioned. In the circumstances, we find that the Commissioner of Income Tax (Appeals) has rightly excluded such interest from the purview of computation of disallowance under Rule 8D(2)(ii). 12. The decision of Calcutta Bench of this Tribunal in the case of Champion Commercial Co.Ltd. (supra) also supports the view of the Commissioner of Income Tax (Appeals). The Tribunal had considered a situation when the loans were utilized for the purchase of machineries, interest aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding construction which clearly relates to the taxable income. The interest expenditure which is not directly attributable to any particular receipt or income is thus only Rs 10,000. However, in terms of the formula in rule 8 D (2)(ii), allocation of interest which is not directly attributable to any particular income or receipt will be for Rs 90,000 because, as per formula the value of A (i.e. such interest expenses to be allocated between tax exempt and taxable income) will be A = amount of expenditure by way of interest other than the amount of interest included in clause (i) [ i.e. direct interest expenses for tax exempt income] incurred during the previous year . Let us say the assets relating to taxable income and tax exempt income are in the ratio of 4:1. In such a case, the interest disallowable under rule 8 D(2)(ii) will be Rs 18,000 whereas entire common interest expenditure will only be Rs. 10,000/-. 13. The incongruity arises because, as the wordings of rule 8D(2)(ii) exist, out of total interest expenses, interest expenses directly relatable to tax exempt income are excluded, interest expenses directly relatable to taxable income, even if any, are not exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verse or arbitrary. Applying the tests formulated by the Supreme Court it is not possible for this Court to hold that there is writ on the statute or on the subordinate legislation perversity, caprice or irrationality. There is certainly no 'madness in the method'. 16. Once the revenue authorities have taken a particular stand about the applicability of formula set out in rule 8 D(2)(ii), and based on such a stand constitutional validity is upheld by Hon ble High Court, it cannot be open to revenue authorities to take any other stand on the issue with regard to the actual implementation of the formula in the case of any assessee. Viewed thus, the correct application of the formula set out in rule 8D(2)(ii) is that, as has been noted by Hon ble Bombay High Court in the case of Godrej and Boyce (supra), amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt (for example-any aspect of the assessee's business such as plant/machinery etc.) . Accordingly, even by revenue s own admission, interest expenses directly attributable to tax exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to substantiate that the advances have been made in the course of normal business. The Commissioner of Income Tax (Appeals) deleted the disallowance following the order of his predecessor in assessee s own case for the assessment year 2004-05 where similar claim for write off of bad advances made to subsidiary companies written off has been allowed. We find that the co-ordinate Bench of this Tribunal sustained the order of the Commissioner of Income Tax (Appeals) for the assessment year 2004-05 on the issue of write off of advances to subsidiary companies holding as under:- 6. We have heard the parties and have perused the orders passed by the CIT(A) as well as the Assessing Officer. We have also gone through the judgements cited by the respective parties. It is an admitted fact that loan was advanced by the assessee company to the subsidiaries. The Assessing Officer in his assessment order dated 23.3.2006 has stated that one of the subsidiary companies has paid interest to the tune of Rs. 9,19,270/- to the assessee. The other subsidiary companies to whom loan has been advanced, they have filed application before BIFR as they have gone sick. As per the conditions laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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