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TMI Blog2016 (5) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Travellers Vs ACIT in ITA No.2083/Mds/2011 dated 02.11.2012 wherein held as follows:- "...rule 8D has already been prescribed. Sub-section 3 further provides that even in a case where the assessee claims that no expenditure was incurred; the assessing authority has to presume the incurring of such expenditure as provided in sub-section 2 read with the rule prescribed. Therefore, it becomes clear that even in a case where the assessee claims that no such expenditure was so incurred, the statute has provided for presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the AO has to follow the consequence stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the AO has to apply rule 8D." Against this, the assessee is in appeal before us. 4. Before us, the ld.A.R submitted that the assessee had worked out the expenditure at Rs. 19,85,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered by the Co-ordinate Bench in the case of ACIT vs. Best & Crompton Engineering Ltd., in ITA No.1603/Mds./2012 vide order dated 16.07.2013 wherein held that:- "10. Heard both sides. Perused the orders of lower authorities and the decision of Calcutta Bench of this Tribunal relied on by the assessee's counsel. This issue has been considered elaborately by the Commissioner of Income Tax (Appeals) and deleted the interest on bank loan and term loans which were not utilized for making any investments having tax free income. While holding so, the Commissioner of Income Tax (Appeals) held as under:- "5.2.1 Having held that provisions of rule 80 are applicable, let us now examine whether the amount has been correctly quantified. The AO had calculated the disallowance at Rs. Nil, Rs. 1,04,38,000/- and Rs. 26,87,000/- under (i), (ii) & (iii) of rule 80 (2) respectively. There is no dispute regarding the first component, because it is Nil. With regard to the second component being the expenditure by way of interest which is not directly attributable to any particular income or receipt, the AO has determined the amount at Rs. 1,04,38,000/. The AO has taken into account the entire i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y sanctioned for specific project and such loans were also used for the purpose for which they were sanctioned. In the circumstances, we find that the Commissioner of Income Tax (Appeals) has rightly excluded such interest from the purview of computation of disallowance under Rule 8D(2)(ii). 12. The decision of Calcutta Bench of this Tribunal in the case of Champion Commercial Co.Ltd. (supra) also supports the view of the Commissioner of Income Tax (Appeals). The Tribunal had considered a situation when the loans were utilized for the purchase of machineries, interest arising out of such loans, whether such interest is to be excluded for the purpose of computing disallowance under Rule 8D(2)(ii), the Tribunal held that such interest has to be excluded. While holding so, it has held as under:- "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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest expenses for tax exempt income] incurred during the previous year". Let us say the assets relating to taxable income and tax exempt income are in the ratio of 4:1. In such a case, the interest disallowable under rule 8 D(2)(ii) will be Rs. 18,000 whereas entire common interest expenditure will only be Rs. 10,000/-. 13. The incongruity arises because, as the wordings 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 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 oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding as under:- "6. We have heard the parties and have perused the orders passed by the CIT(A) as well as the Assessing Officer. We have also gone through the judgements cited by the respective parties. It is an admitted fact that loan was advanced by the assessee company to the subsidiaries. The Assessing Officer in his assessment order dated 23.3.2006 has stated that one of the subsidiary companies has paid interest to the tune of Rs. 9,19,270/- to the assessee. The other subsidiary companies to whom loan has been advanced, they have filed application before BIFR as they have gone sick. As per the conditions laid down by the BIFR no interest can be charged by holding company on its subsidiary. The facts and circumstances of the case show that the assessee has extended loans and advances to its subsidiaries to support the business and on account of commercial expediency. The subsidiaries could not repay the loans or advances for the reason that they have incurred huge financial losses and have gone sick. The Assessing Officer has not disputed the fact that subsidiary companies are under liquidation proceedings and therefore loans are not recoverable. It is understandable tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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