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2015 (3) TMI 1113 - ITAT DELHI

2015 (3) TMI 1113 - ITAT DELHI - TMI - Addition u/s 14A - CIT(a) deleted the addition in part - Held that:- There is no common interest expenditure in the present case as per the uncontroverted submissions of the assessee, no portion of interest really survives for allocation under rule 8D(2)(ii). However, as the ld. CIT(A) has given partial relief and the assessee is not in appeal against the same, all we can hold is that the relief granted by the ld. CIT(A) does not need to be disturbed at t .....

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he Income Tax Act, 1961 (hereinafter referred to as the Act ), for the assessment year 2008-09. 2. Grievance raised by the Assessing Officer is as follows :- 1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 2,75,99,750/- made u/s 14A. a) The Ld. CIT(A) has erred in law and on facts that Rule 8D is applicable from A.Y. 2008-09. Further, disallowance of administrative expenses and interest expenses on earning of dividend income claimed exempt is also held .....

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essee has earned dividend income of ₹ 89,02,540/- out of which ₹ 68,44,790/- have been claimed as exempt under Secton10(34)of the Act but the assessee has offered only ₹ 6,84,479/-, being 10% of the dividend receipts of tax exempt dividends of ₹ 68,44,790/-, as disallowable under section 14A of the Act on notional basis out of administrative expenses. He was of the view that invocation of section 14A is automatic and comes into operation without any exemption as soon as d .....

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ncome (as submitted by assessee) - Opening Balance of Investments - Closing Balance of investments - Average value of above investment 141,08,46,569 24,30,65,835 82,69,56,202 - C Average of total assets - Opening balance of assets - Closing Balance of assets - Average value of above assets 271,57,46,116, 102,35,42,451, 186,96,44,283 A x B/C = 5,52,83,131 x 82,69,56,202/186,96,44,283 2,44,52,100 (iii) Average value of investment (as submitted by assessee) - Opening balance of investments - Closin .....

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y. (Addition aRs.2,79,02,402) 4. Aggrieved by the disallowance so made, assessee carried the matter in appeal before the ld. CIT(A) who deleted this disallowance and, in support, observed as follows:- From a perusal of the asst. order para-4, it has been seen that the AO is not satisfied with the version of the appellant that it had incurred ₹ 6,84,479/- being 10% of net exempt income as disallowance but he has not given the basis as to why he is not satisfied with version of the appellant .....

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#8377; 5,52,83,131/- as adopted by the AO. Adopting the figure of ₹ 83 lacs; for the purpose of Rule 8D the disallowance works out to ₹ 37,11,031/- as against ₹ 6,84,479/- offered by the appellant. Therefore the disallowance is confirmed to the extent of ₹ 30,26,552/- only i.e. (37,11,031 - 6,84,479). The ground of appeal is partly allowed. 5. The Assessing Officer is aggrieved of the partial relief so granted by the ld. CIT(A) and is in appeal before us. 6. We have heard .....

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nt against this variable (i.e. common interest expenditure not specifically allocated to tax exempt and taxable income) is NIL as evident from note 4 to the computation of income which is reproduced below :- (c) Reference is invited to Note 4 of the computation of income, attached at page 2. Total interest debited to Profit & Loss Account 5,52,83,131 Interest allowable as interest Charged and surrendered on income Less: Interest on loan given to FASPL on which interest has been charged 2,96, .....

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the time it was subsidiary of BOPL, as allowable in view of the decision of Supreme Court in SA Builders 228 ITR 1 83,90,178 There is no interest which is attributable for the purposes of Rule 8D. The sum of ₹ 83,90,178/- is the only balance interest which as per assessee is allowable. 8. It is important to bear in mind the fact that what can be allocated under rule 8D2(ii) is the amount of expenditure by way of interest other than interest directly relatable to tax exempt income as also .....

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interest expenditure directly related to taxable income. Resultantly, while rule 8D(2)(ii) admittedly seeks to allocate expenditure by way of interest, which is not directly attributable to any particular income or receipt it ends up a llocating expenditure by way of interest, which is not directly attributable to any particular income or receipt, plus interest which is directly attributable to taxable income (emphasis by underlining supplied by us). This incongruity will be more glaring with t .....

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us 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 ₹ 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 t .....

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le 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 .....

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he interest directly attributable to tax exempt income, i.e. under rule 6D(2)(i), but also interest directly relatable to taxable income, which is to be excluded from the definition of variable A in formula as per rule 6D(2)(ii), and rightly so, because it is only then that common interest expenses, which are to be allocated as indirectly relatable to taxable income and tax exempt income, can be computed. This is clear from the following observations made by Their Lordships of Hon ble Bombay Hig .....

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est 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 exampleany aspect of the assessee's business such as plant/machinery etc.)…………… The justification that has been offered in support of the rationale for r. 8D cannot be regarded as being caprici .....

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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 .....

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