TMI Blog2018 (2) TMI 2003X X X X Extracts X X X X X X X X Extracts X X X X ..... BAY HIGH COURT ] 366 ITR 505 (Bom) and CIT v. Reliance Utilities Power Ltd [ 2009 (1) TMI 4 - BOMBAY HIGH COURT ] we direct the AO to delete the disallowance made by him under Rule 8D(2)(ii). Disallowance u/s 8D(2)(iii) in the normal computation of income - In Godrej Boyce Manufacturing Company Ltd. v. DCIT [ 2017 (5) TMI 403 - SUPREME COURT ], it is held that the literal meaning of Section 14A, far from giving rise to any absurdity, appears to be wholly consistent with the scheme of the Act and the object/purpose of levy of tax on income. We confirm the disallowance of ₹ 490.91 lacs made by the AO under Rule 8D(2)(iii) in normal computation of income. To sum up Disallowance made by the AO while arriving at book profit u/s 115JB is deleted, disallowance made by the AO in normal computation u/s 8D(2)(ii) is deleted and disallowance made by the AO in normal computation under Rule 8D(2)(iii) is confirmed. Assessee appeal is partly allowed. - ITA No. 1509/MUM/2015 - - - Dated:- 9-2-2018 - SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) For the Appellant : Mr. M.M. Golvala, AR For the Revenue : Mr. V. Justin, DR ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax on normal computation, the AO assessed the book profit at ₹ 180,07,24,877/- u/s 115JB. While arriving at the above book profit, the AO made a disallowance of ₹ 2,49,38,699/- u/s 14A. Also the same disallowance was made by him while arriving at the assessed total income of ₹ 47,11,06,988/- in the normal computation of income. It is pertinent to find out how the AO arrived at the disallowance of ₹ 2,49,38,699/- u/s 14A. During the course of assessment proceedings, he found out that the appellant had earned exempt income of ₹ 58,64,44,748/- [dividend u/s 10(34)] and ₹ 104,79,05,552/- [long term capital gains u/s 10(38)]. The appellant had disallowed ₹ 2,91,97,301/- as expenses attributable to the exempt income. In response to a query raised by the AO to explain as to why disallowances should not be made u/s 14A r.w. Rule 8D, the appellant submitted vide letter dated 15.01.2013 that it had disallowed reasonable expenses as per tax audit report and therefore further disallowance is not called for. However, the AO was not convinced with the said explanation of the appellant and he made a disallowance of ₹ 5,41,36,000/- u/s 14A r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99/- made by the AO u/s 14A in the normal computation of income. On a perusal of the balance sheet of the appellant as at 31st March 2011, we find that it had its own funds of ₹ 1,63,968.62 lacs which exceed total investment of ₹ 1,29,088.44 lacs. In HDFC Bank Ltd. (supra), the Hon'ble Bombay High Court referring to the decision in CIT vs. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) and CIT v. Reliance Utilities Power Ltd. [2009] 313 ITR 340 (Bom) held as under : 15. It is clear that for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyce v. DCIT (2010) 194 Taxman 203 as under: Section 14A was enacted by the Parliament in order to overcome the judgments of the Supreme Court in the cases of CIT v. Indian Bank Ltd. AIR 1965 SC 1473, CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 and Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450/109 Taxman 145, in which it was held that in the case of a composite and indivisible business, which results in earning of taxable and non-taxable income, it is impermissible to apportion the expenditure between what was laid out for the earning of taxable income as opposed to non-taxable income. The effect of section 14A is to widen the theory of the apportionment of expenditure. Prior to the enactment of section 14A, where the business of an assessee was not a composite and indivisible business and the assessee earned both taxable and non-taxable income, the expenditure incurred on earning non-taxable income could not be allowed as a deduction as against the taxable income. As a result of the enactment of section 14A, no expenditure can be allowed as a deduction in relation to income which does not form part of the total income under the Act. Hence, even in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excluded on the ground that in the case of a large corporate taxpayer they would be spread over a large number of voluminous activities, the variable expenses were computed at one-half per cent of the value of the investment. The justification that has been offered in support of the rationale for rule 8D cannot be regarded as being capricious, perverse or arbitrary. 8.2.1 In Godrej Boyce Manufacturing Company Ltd. v. DCIT [2017] 81 taxmann.com111 (SC), it is held that the literal meaning of Section 14A, far from giving rise to any absurdity, appears to be wholly consistent with the scheme of the Act and the object/purpose of levy of tax on income. In view of the above position of law, we confirm the disallowance of ₹ 490.91 lacs made by the AO under Rule 8D(2)(iii) in normal computation of income. 9. To sum up, (i) the disallowance made by the AO of ₹ 2,49,38,699/- while arriving at book profit u/s 115JB is deleted, (ii) the disallowance made by the AO in normal computation of ₹ 50.45 lacs under Rule 8D(2)(ii) is deleted and (iii) the disallowance made by the AO in normal computation of ₹ 490.91 lacs under Rule 8D(2)(iii) is confirmed. 10. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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