TMI Blog2015 (1) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... - BOMBAY HIGH COURT] - even in earlier years reasonable disallowance is required to be made - there is no reason to compute disallowance as per Rule 8D during the relevant AY 2008-09 - the AO is directed to disallow 50% of total expenditure of ₹ 4.65 lakhs in addition to disallowance of interest expenditure of ₹ 230 lakhs, attributable to earning of exempt income out of total interest expenditure of ₹ 236.73 lakhs. Redemption on debenture to be treated as capital gain or not – held that:- the AO has not treated the amount received on redemption as capital receipt on the plea that there was no transfer within the meaning of Section 2(47) - redemption of debenture amount to transfer within the meaning of Section 2(47), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 22,12,093/- under Section 14A. The AO observed that assessee has earned dividend income of ₹ 5.84 crores which is exempt from tax u/s.10(34), whereas in the computation of income, assessee has disallowed an amount of ₹ 2.30 crores being interest expenditure as per Section 14A. The AO further observed that in the calculation of the interest expenditure, the assessee has not calculated 0.5% of the average value of investment, the income from which does not form part of total income. Accordingly the disallowance u/s.14A of the Act r.w.Rule 8D is worked out as under :- Calculation for disallowance of expense based on rule 8D The amount of expenditure directly relating to income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.5% of the average value of investment, the income from which does not form part of total income 32.81 Total disallowance is aggregate of (i) + (ii) + (iii) = 252.79 4.3 The assessee in the computation of total income has disallowed an amount of ₹ 2,30,66,907/- on interest disallowed u/s.14A of the Act. In view of the above, an amount of ₹ 22,12,093/- (Rs.2,52,79,000 ₹ 2,30,66,907) is treated as expenditure incurred for earning the dividend income and the same is disallowed u/s.14A of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear in the form of profit on sale of shares of ₹ 8.64 lakhs, profit on redemption of debentures of ₹ 80.02 lakhs. However, the AO computed disallowance of other expenditure at ₹ 22.12 lakhs as against total expenditure of ₹ 4.65 lakhs incurred by assessee. The AO has nowhere pointed out mistake in the disallowance proposed by the assessee amounting to ₹ 230 lakhs. However, he has applied Rule 14A. The year under consideration is assessment year 2007-08, whereas Rule 14A was made applicable from Assessment Year 2008-09 as held by Hon'ble jurisdictional High Court in the case of Godrej Boyce Mfg. Ltd., 328 ITR 81. However, the Hon'ble High Court has further stated that even in earlier years reasonable dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Thus, it was the investment on which assessee was earning interest and on redemption of such investment, amount so received was in the nature of capital gain on capital receipt. Reliance was placed on the decision of M.P. High Curt in the case of Madhya Pradesh Financial Corporation Vs. CIT, MP, reported in 1980-(IT2)-GJX-0629-MP, wherein it was held that excess amount received on redemption bonds was in the nature of capital receipt, therefore, liable to be taxed as capital gains. Action of the AO for treating the same as business income of assessee was held to be not justified. 9. Reliance was also placed on the decision of the coordinate bench in the case of Mrs. Perviz Wang Chuk Basi Vs. JCIT, reported in 2006-(102)-ITD-0123 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the transfer thereof. We do not approve, respectfully, of the limitation of the expression extinguishment of any rights therein to such extinguishment on account of transfers or to the view that the expression extinguishment of any rights therein cannot be extended to mean the extinguishment of rights independent of or otherwise than on account of transfer. To so read the expression is to render it ineffective and its use meaningless. As we read it, therefore, the expression does include the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer. From the record we found that the AO has not treated the amount received on redemption as capital receipt on the plea that there was no tra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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