TMI Blog2013 (11) TMI 1588X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Petitioner : Shri P.L. Kureel, Sr.D.R. For the Respondent : Shri Vijay Ranjan, A.R. ORDER PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER These two appeals of the assessee have emerged from the orders of learned CIT(A)-XIV, Ahmedabad, respectively, dated 08.08.2012 and 09.05.2013. For these two years identically worded grounds have been raised, challenging the disallowance of interest by invoking the provisions of Section 14A of IT Act. For A.Y. 2009-10, the disallowance was ₹ 41,13,106/- and for A.Y. 2010-11, the disallowance was ₹ 9,26,942/- 2. The assessee company is a builder and developer of residential and commercial projects. It was noted by the AO that the assessee company is a partner in several partnership firms . The AO had made a list of all those firms along with profit sharing ratio of the assessee in those firms. It was noted by the AO that for A.Y.2009-10, the assessee had earned profit from those partnership firms ₹ 20,54,20,402/-. The said profit was claimed as exempt u/s.10(2A) of IT Act. The assesse s investment in those firms as on 31st of March, 2009 was ₹ 66,63,26,727/-. Further, it was noted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Advances 950,216,867 1,643,331,314 Note 4 Total Investment in Partnership Firms as at March 31, 2008 570,202,724 Less: Less: Investment form which interest is received (a) Gokuldham Developers 186,215,014 (b) Snehal Developers 3,239,024 189,454,038 Less: Profit Elements not withdrawn from firm (a) Safal Associates 43,608,321 Net Investment 337,140,366 Note- 5 Total Investment in Partnership Firms as at March 31, 2009 6,65,626,727 Less: Less: Investment form which interest is received (a) Gokuldham Developers 185,107,968 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision was pronounced on the principal of netting and held that once the entire expenses have been offered for disallowance then there was nothing remain for disallowance u/s. 14A of the IT Act. An another plea was raised that the interest paid on vehicle loan, etc., should be excluded from the figure of the interest paid during the year. This plea of the assessee was accepted by learned CIT(A) and accordingly an adjustment was granted; hence, instead of the total interest expenditure of ₹ 1,22,01,010/-, learned CIT(A) has directed that the interest expenditure for the purpose of Rule 8D was to be considered at ₹ 1,15,56,267/-. Against this part relief now the assessee is further in appeal. 4. From the side of the appellant, learned AR Mr. Vijay Ranjan appeared and pleaded that the assessee had its own sufficient funds of ₹ 106,16,43,052/-. However, the investment in capital of partnership firms was only ₹ 66,56,26,727/-. Once the assessee had sufficient own funds, therefore, the provisions of Section 14A were wrongly invoked. He has also argued that the assessee has earned interest free partnership firm on capital of ₹ 1,18,50,970/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O is first required to determine the amount of expenditure in relation to such exempted income. We have also noted that even for A.Y. 2008-09 the Respected Co-ordinate Bench D ITAT Ahmedabad in the case of Karnavati Petrochem Pvt. Ltd. (supra) has held as under: We have heard the rival submissions and perused the material on record. We find that CIT(A) while granting relief to the Assessee has given a finding that no nexus has been established by the AO which the amount incurred by the Assessee for earning the tax free income. He has further noted that in the Assessee s case the interest income was more than interest expense and thus the Assessee was having net positive interest income and therefore the same cannot be considered for disallowance and for which he place reliance on the decision of Kolkata Tribunal in the case of Trading Apartment Limited and the decision of Tribunal in the case Morgan Stanley India Securities Private Limited. He however considered the administrative expenses to be 0.5% of the average investments and disallowed the same. 5.2 To complete this order, we deem it proper to reproduce a portion of the order of Hon ble Delhi High Court pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amount of expenditure in relation to exempt income under rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of rule 8D, the method for determining the expenditure in relation to exempt income has three components. The first component is the amount of expenditure directly relating to income which does not form part of the total income. The second is being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest (other than the amount of interest included in clause (i) incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure-one half percent of the average of the investment, income from which does not or shall not form part of the total income, appearing in the balance-sheets of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim and state the reasons for doing so. Having done so, the Assessing Officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. 5.3 Under the totality of the facts and circumstances of the case, we are of the considered opinion that when the interest income was more than the interest expenditure then the AO was not justified to invoke the provisions of Section 14A read with Rule 8D of IT Act. We hereby reverse the findings of the authorities below and direct to delete the disallowance. 6. Facts being identical for A.Y. 2010-11 in solido applies. As far as the question of disallowance of administrative expense is concerned, although learned AR has raised this question, but no such ground has been raised before us as per the grounds of appeal. There was some mention in the statement of facts but in a situation when no specific ground as per grounds of appeal has been raised before us, therefore, we are not empowered to adjudicate an issue which has not been properly raised before us as per la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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