TMI Blog2017 (4) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... and is directed against the order dated 28th January 2014, passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2010-11. 2. Grievance of the assessee, in substance, is that the learned CIT(A) erred in upholding the disallowance of ₹ 7,23,661 made by the Assessing Officer under section 14A of the Act. 3. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee is a non banking finance company (NBFC), and has, inter alia, made certain investments yielding tax exempt income by way of dividends. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has earned a dividend income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which works out to ₹ 2,20,714) by taking into account only such investments on which tax exempt income was actually earned, the Assessing Officer has computed this portion of disallowance at ₹ 13,86,103 by taking into account entire investments yielding tax exempt incomeirrespective of whether or not there was any tax exempt income in the relevant previous year or not. Learned counsel has, however, gives a new twist to the case now. She submits that the interest free funds available to the assessee are far in excess of the investments yielding tax exempt income and these investments are carried forward from an earlier point of time much before the related borrowings were resorted to. He contention is that, in view of this factu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ACIT Vs Champion Commercial Co Ltd [(2012) 139 ITD 108 (Kol)], which now stands specifically approved by Hon ble Delhi High Court in the case of PCIT Vs Bharti Overseas Limited [(2015) 64 taxmann.com 340 (Del)]. In the said case, the coordinate bench, speaking through one of us, had observed as follows: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co Ltd, total interest expenditure is ₹ 1,00,000, out of which interest expenditure in respect of acquiring shares from which tax free dividend earned is ₹ 10,000. Out of the balance ₹ 90,000, the assessee has paid interest of ₹ 80,000 for factory building construction which clearly relates to the taxable income. The interest expenditure which is not directly attributable to any particular receipt or income is thus only ₹ 10,000. However, in terms of the formula in rule 8D(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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude 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 tax exempt income, i.e. under rule 8D(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 8D(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 High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue 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 Boyce Mfg. Co. Ltd. (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 exampleany 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 direc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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