TMI Blog2016 (10) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from other sources'. Interest paid on term loan set off against the interest income - Held that:- With regard to alternative contention of the assessee that the interest paid on term loan should be set off against the interest income, we are of the view that the same requires examination at the end of the AO, since the alternative contention has not been examined by him. It is not clear from the record as to how the interest expenditure relating to the term loan was treated in the books of account and how it was allowed by the AO. Disallowance made under section 14A - Held that:- As decided in the case of “Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT” [2010 (8) TMI 77 - BOMBAY HIGH COURT ] that the provisions of Rule 8D shall be applicable from assessment year 2008-09 onwards and for the earlier years the disallowance should be made on reasonable basis. The contention of the assessee that the interest free funds available with was more than the investments made and hence, no disallowance is required out of interest expenditure is acceptable. Hence the disallowance, if any, is required to be made only in respect of administrative expenses incurred in the dividend income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income of ₹ 23.94 lakhs. 2. Disallowance made under section 14A of the Act. 3. Apportionment of common expenditure between STPI and non STPI units. 3. The assessee company is engaged in information technology, computer software and IT enabled services, more particularly in web development and the website services such as domain name registration, web using services etc. The assessee is eligible for deduction under section 10A of the Act in respect of profits derived from STPI unit. 4. The first issue relates to treatment of interest income of ₹ 23.94 lakhs received by the assessee from inter-corporate loan given by it. During the year under consideration, the assessee had taken a loan of ₹ 3 crores from Karnataka Bank Ltd. for the purpose of purchasing an office premise. Since the payment towards the purchase of office premises was not required to be made immediately, the assessee advanced the above said amount of ₹ 3 crores to M/s. Acme Housing India Pvt. Ltd., at interest rate of 18% per annum. The assessee had borrowed the money from Karnataka Bank Ltd., at the rate of 11% per annum. The interest income of ₹ 23.94 lakhs received on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, since the interest corporate loan was given out of the term loan availed by the assessee for purchasing a house property, i.e., the loan has been given as the term loan was not required to be used immediately. Under these set of facts, we are of the view that the tax authorities are justified in assessing the interest income of ₹ 23.94 lakhs as income of the assessee under the head Income from other sources. 8. With regard to alternative contention of the assessee that the interest paid on term loan should be set off against the interest income, we are of the view that the same requires examination at the end of the AO, since the alternative contention has not been examined by him. It is not clear from the record as to how the interest expenditure relating to the term loan was treated in the books of account and how it was allowed by the AO. If the alternative claim of the assessee is accepted, then the corresponding adjustments are required to be made in other heads also. Accordingly we restore the alternative contention of the assessee to the file of the AO with a direction to examine the same afresh after affording adequate opportunity of being heard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by the assessee. 13. We have heard the rival contentions on this issue and perused the record. We notice that the Ld. CIT(A) has upheld the action of the AO with the following observation: 8. I have considered the said submissions. There is no dispute as regards allocation of direct expense since they are charged to the respective units. The dispute is with regard to allocation of indirect expenses. The A.O. has taken the view that such indirect expenditure is to be allocated in proportion of sales of the eligible unit to that of total sales. In this regard, I have called for the specific details of allocation as carried out by the appellant. As per the details submitted by the appellant, it is seen that no uniform standards or parameters has been applied by the appellant company for the purpose of allocation. In fact, different variables have been used for the purpose of allocation. For instance, it is seen that in respect of expenses debited under the head Administrative Expenses , canteen expenses are apportioned between the domestic and STPI unit on the basis of employee ratio, courier charges in the ratio of Domain Name Registration Expenses, Electricity charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee ratio cannot be found fault with. However, the allocation of electricity expenses, Insurance expenses, Travelling expenses, Selling distribution expenses on the basis of employee ratio does not appear to be scientific. Similarly, the allocation of foreign exchange fluctuation on the basis of domain registration etc. does not appear to be scientific. The foreign exchange fluctuation can be linked to specific items and how it is not understandable as to how the same was treated as common expenses. At the same time, adoption of sales ratio as the basis for allocation of expenses across the board also does not appear to be correct. Accordingly we are of the view that this issue also requires fresh examination at the end of the AO. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine this issue afresh after affording adequate opportunity to the assessee to present more suitable method of allocation and take appropriate decision in accordance with the law. 16. In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes. Order pronounced in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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