TMI Blog2014 (6) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... AO noted that the assessee has received substantial exempt income and the disallowance u/s 14A r.w Rule 8D is called for - the disallowance has three components and aggregate of all the three components is the amount which is to be disallowed - assessee has considered only the first component i.e., the amount of expenditure directly relating to exempt income. He has not considered Part (ii) and (iii) of Rule 8D(2) – thus, the computation made by the assessee for disallowance u/s 14A(2) was not in accordance with Rule 8D and the AO has duly noted it in the assessment order and thereafter proceeded to compute the disallowance as per Rule 8D. The expenses which assessee claimed to have been not incurred for earning of exempt income have not been considered by the AO at all - the disallowance itself is ₹ 65,36,743 - assessee has not disputed the value of investment as taken by the AO for the purpose of computing the disallowance at half per cent as provided by Rule 8D(2)(iii) - whether the working of the disallowance of interest as per Rule 8D(2)(ii) is correct or not is of academic interest – thus, the disallowance worked out by the AO which was the aggregate of three compon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following decisions:- (i) Maxopp Investments Ltd. Vs. CIT [2012] 247 CTR 162 (Del). (ii) Jindal Photo Ltd. Vs. DCIT 2011-TIOL-653-ITAT-DEL. (iii) DCIT Vs. Ashish Jhunjhunwala ITA No.1809/Kol/2012, order dated 14.5.2013 for AY 2009-10. (iv) Kalyani Steels Ltd. Vs. Addl.CIT ITA No.1733/PN/2012, order dated 30.01.2014. (v) Godrej Boyce Mfg.Co.Ltd. Vs. DCIT [2010] 328 ITR 81 (Bom). 4. The learned counsel further disputed the correctness of the working of disallowance under Rule 8D and pointed out that expenses like filing fees, house tax, conveyance, insurance of building and cars, electricity, building repair, printing stationery, telephone expenses, audit fees, office rent, vehicle expenses, staff welfare expenses, interest, establishment and depreciation etc. cannot be said to be related to earning of exempt income. In support of this contention, he relied upon the decision of ITAT in the case of ACIT Vs. SIL Investments Ltd. [2012] 73 DTR 233 (Del)(Trib) and of ITAT, Ahmedabad Bench in the case of Vishnu Anant Mahajan Vs. ACIT 16 ITR 621 (Trib)(SB) =. He, therefore, submitted that the disallowance made by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income, in our opinion, the Assessing Officer as well as the other statutory authorities under the Income-tax Act are also required to determine the amount of expenditure in relation to exempt income as per the method prescribed in the Rules. While taking this view, we derive support from the decision of Hon ble Apex Court in the case of Bharat Hari Singhania Vs. CWT [1994] 207 ITR 1 (SC). Accordingly, ground No.(a) of the assessee s appeal is rejected. 7. Ground No.(b) (c) are interconnected. They are with regard to computation of disallowance made by the Assessing Officer. 8. The assessee has disputed the disallowance firstly on the ground that no satisfaction is recorded by the Assessing Officer as envisaged by sub-section (2) of Section 14A and, therefore, the Assessing Officer was not empowered to modify the disallowance proposed by the assessee. So far as the legal proposition put forth by the learned counsel is concerned, there is no dispute. As per Section 14A(2), the Assessing Officer can embark upon determination of amount of expenditure incurred in relation to exempt income only if he records a finding that he is not satisfied with the correctness of the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in accordance with the provisions of Rule 8D. However, in the present case, the assessee has disallowed only the following expenses in the computation of income. S. No. Disallowance Amount 1. Security Transaction Tax Rs.1,77,305/- 2. Depository Charges Rs.7,090/- 3. Custodian Fee Rs.1,13,045/- Total Rs.2,97,440/- 3.2 The disallowance under section 14A read with Rule 8D is computed as under:- S. No. Disallowance Amount (Rs.) 1. The amount of expenditure directly relating to income which does not form part of total income. 2,97,440/- (as per details given above. The disallowance has already been made by the assessee in the return of income. Hence, no further disallowance). 2. In a case where the assessee has incurred expenditure b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer failed to record the satisfaction as envisaged by Section 14A(2). On the other hand, we find that as per Rule 8D(1), the disallowance is to be computed as per Rule 8D(2) which reads as under:- (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :- A X B/C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C = ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been considered by the Assessing Officer at all. The assessee has also disputed the correctness of the disallowance of interest at Rs.34,08,582/-. However, we find that the disallowance as per Part (iii) itself is Rs.65,36,743/-. The assessee s counsel has not disputed the value of investment as taken by the Assessing Officer for the purpose of computing the disallowance at half per cent as provided by Rule 8D(2)(iii). The disallowance at half per cent of the investment is Rs.65,36,743/- while finally, the Assessing Officer restricted the disallowance to Rs.52,56,197/-. Therefore, whether the working of the disallowance of interest as per Rule 8D(2)(ii) is correct or not is of academic interest and, therefore, we do not wish to go into the details of the assessee s arguments with regard to the correctness of the disallowance of interest. At the cost of repetition, we reiterate that the disallowance worked out by the Assessing Officer which was the aggregate of three components as prescribed under Rule 8D(2) was Rs.99,45,325/-. But, finally, the Assessing Officer restricted the disallowance to Rs.52,56,197/-. Therefore, in our opinion, no relief is due to the assessee from the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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