TMI Blog2015 (8) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... from the AIDL. It is completely a back to back transaction and the material on record clearly demonstrates that. Just because it is routed through the same bank account, it cannot be presumed that the money is out of the common funds. Such a presumption, as has been strenuously argued before us by the learned Departmental Representative, will be contrary to the clearly established facts on record. For this reason also, and in the light of the coordinate bench decision in the case of Champion Commercial Co Ltd (2012 (10) TMI 24 - ITAT, KOLKATA), the relief granted by the CIT(A) was quite justified. - ITA No. 1943/Ahd/2012, C.O. No. 44/Ahd/2013 - - - Dated:- 17-7-2015 - Pramod Kumar, AM And S. S. Godara JM,JJ. For the Appellant : Subhash Bains For the Respondent : S. N. Soparkar ORDER Per Pramod Kumar 1. This appeal filed by the Assessing Officer, as also cross objection filed by the assessee, are directed against the order dated 11th July, 2012, passed by the learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act'), for the assessment year 2009-10. 2. In the appeal filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up together. 5. Briefly stated, the relevant material facts are like this. During the course of the assessment proceedings, the Assessing Officer noticed that the assesse has earned dividend income of ₹ 79,20,56,505, received profit from partnership firm amounting to ₹ 18,38,067 and received interest amounting to ₹ 26,08,28,104. Out of these three items, so far as dividend income and partnership profits are concerned, the same are not includible in income liable to be taxed in view of the provisions of Section 10(36) and 10(2A). As for interest receipts, it was noted that the assesse set off the same against the interest expenses of ₹ 25,77,86,144. The Assessing Officer also noted that the investment in the shares of Mundra Port Special Economic Zone Limited had gone up from 576.12 crores to 933.27 crores, whereas the assesse ceased to hold shares in Adani Enterprises Limited which were valued at ₹ 701.12 crores in the beginning of the year. On the basis of the facts so noted, the Assessing Officer proceeded on the basis that entire business activity of the assesse was centred around earning tax exempt income from dividend and share of profits fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 6774/Mum/2008; order dated 13th April 2011), a co-ordinate bench of this Tribunal has held that for the purpose of disallowance under section 14A what is to be taken into account is net amount debited in the profit and loss account and not the gross interest debited to the profit and loss account. Same was the view of another coordinate bench in the case of DCIT Vs Trade Investments Ltd (ITA No. 1277/Kol/2011; order dated 30th March 2012). Viewed thus, the action of the CIT(A) was fully justified in taking into account only the net figure which was nil in this case. 8. There is another approach to this issue which also leads to the same conclusion. In the case of ACIT Vs Champion Commercial Co Ltd [(2012) 139 ITD 108 (Kol)], it has been held that under rule 8D(2)(ii) what can be allocated as expense incurred for earning tax exempt and taxable income is the net figure of expenses after reducing expenses incurred exclusively for earning tax exempt income as also expenses incurred exclusively for earning taxable income. In effect thus only expenses common to taxable and exempt income can be allocated under this rule. While holding so, the coordinate bench has observed as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. 11. There is no dispute about working of this method so far as rule 8D(2)(i) and (iii) is concerned. It is only with regard to the computation under rule 8D(2)(ii) that the Assessing Officer and the CIT(A) have different approaches. This provision admittedly deals with a situation in which the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt . Clearly, therefore, this sub clause seeks to allocate 'common interest expenses' to taxable income and tax exempt income. In other words, going by the plain wordings of rule 8D(2)(ii) what is sought to be allocated is expenditure by way of interest .which is not directly attributable to any particular income or receipt and the only categories of income and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordings 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 excluded. 14. The question then arises whether we can tinker with the formula prescribed under rule 8D(2)(ii) of the Income Tax Rules, or construe it any other manner other than what is supported by plain words of the rule 8 D (2)(ii). 15. We find that notwithstanding the rigid words of Rule 8D(2)(ii), the stand taken by the revenue authorities about its application, as was before Hon'ble Bombay High Court in the case of Godrej Boyce Mfg Co Ltd Vs DCIT (328 ITR 81) when constitutional validity of rule 8 D was in challenge, is that It is only the interest on borrowed funds that would be apportioned and the 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.) . Therefore, it is not only the interest directly attributable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income as also directly attributable to taxable income, are required to be excluded from computation of common interest expenses to be allocated under rule 8D(2)(ii). 17. To the above extent, therefore, we have to proceed on the basis that rigour of rule 8 D (2)(ii) is relaxed in actual implementation, and revenue authorities, having taken that stand when constitutional validity of rule 8 D was in challenge before Hon'ble High Court, cannot now decline the same. Ideally, it is for the Central Board of Direct Taxes to make the position clear one way or the other either by initiating suitable amendment to rule 8D(2)(ii) or by adopting an interpretation as per plain words of the said rule, but even on the face of things as they are at present, in our humble understanding, revenue authorities cannot take one stand when demonstrating lack of 'perversity, caprice or irrationality' in rule 8D before H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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