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TMI Blog2020 (12) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. No disallowance on account of expenses incurred in relation to the earning of such exempt income however was offered by the assessee as required by the provisions of section 14A of the Income Tax Act, 1961. In this regard, it was explained by the assessee that the share of profit from the partnership firm although was exempt in the hands of the assessee-company as a partner, the same had suffered tax in the hands of the partnership firm. It was also submitted by the assessee that no expenses in relation to the earning of exempt income were incurred by it during the year under consideration. The Assessing Officer did not find merit in the submissions made on behalf of the assessee-company and by applying Rule 8D of the Income Tax Rules, 1962, he worked out the interest expenses and other common expenses incurred by the assessee in relation to the earning of exempt income at Rs. 16,08,739/- and Rs. 8,58,611/- respectively. Accordingly, the disallowance of Rs. 24,67,350/- was made by the Assessing Officer u/s. 14A r.w. Rule 8D. On appeal, the ld. CIT(A) upheld the action of the Assessing Officer in making the disallowance u/s. 14A r.w. Rule 8D in principle observing that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and not the entire investments as considered by the Assessing Officer. Since this contention raised by the ld. Counsel for the assessee is duly supported inter alia by the decision of the Mumbai Bench of this Tribunal in the case of Fineotex Chemical Ltd. vs. ACIT (ITA No. 5412/Mum/2016 dated 27.02.2018), we direct the Assessing Officer to re-compute the disallowance to be made u/s. 14A of the Act by applying Rule 8D(2)(iii) of the Rules on account of other common expenses by taking into consideration only those investments on which exempt income was actually earned by the assessee during the year under consideration. Ground no. 1 and 2 of the assessee's appeal are thus partly allowed. 6. The issue involved in ground no. 3 relates to the disallowance of interest made by the Assessing Officer which is sustained by the ld. CIT(A) to the extent of Rs. 22,17,414/-. 7. As found by the Assessing Officer during the course of assessment proceedings, the investment of Rs. 17 crores was made by the assessee in the debentures of M/s. Kunal Spaces Pvt. Ltd. At the same time, the assessee-company had availed interest bearing loan of Rs. 2.22 crore on which interest of Rs. 30,23,059/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t its working directors were professionals having experience in their field and remuneration of Rs. 18 lakhs was paid to them during the year under consideration for rendering services as per the prevailing market rate and situation. The Assessing Officer did not accept this explanation of the assessee-company. He noted that there was decline in the overall expenditure incurred by the assessee during the year under consideration and the increase of 20% in director's remuneration without any proper justification was not allowable. He accordingly made disallowance of Rs. 3 lakhs out of director's remuneration which was confirmed by the ld. CIT(A). 11. We have heard the arguments of both the sides and also perused the relevant material available on record. As rightly contended by the ld. Counsel for the assessee, the remuneration of Rs. 18 lakhs paid by the assessee-company to its directors during the year under consideration was duly justified by the assessee-company with reference to their qualification and experience as well as the services rendered to the assessee-company and without bringing on record anything to show that the remuneration so paid by the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has paid excessive amount of Rs. 2,95,884/-. These persons are undoubtedly persons covered u/s. 40A(2)(b). This calculation shows that appellant has paid excessive rent to persons covered u/s. 40A(2)(b) over and above the market rent. Under these circumstances, invocation of section 40A(2) by AO is correct. 9.6 The appellant relied on the decision of the Bombay High Court in case of Indo Saudi Services (Travel)(P)(Ltd.)(supra) does not support the case of the appellant as the transactions are not between two corporate in case of the appellant. It is transaction between company and individuals/HUF. The contention of the appellant is that the transactions are revenue neutral is devoid of merits as the company has to face taxes at two stages, firstly at the stage of earning and at the stage of dividend. In case of individual on application of income there is no taxes. Therefore, the decision of the Indo Saudi Services(Travel)(P)(Ltd.)(supra) does not support the case of the appellant. 9.7 The appellant has also paid municipal taxes amounting to Rs. 2,87,696/- for office taken on rent and Rs. 1,30,622/- for unsold flats. Apparently, these two items are also to be included ..... 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