TMI Blog2021 (1) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... n expenditure relatable to investment activity and business activity has to be allocated on a systematic basis for which a separate method is prescribed under Rule 8D of IT Rules, 1962. In this case, the Assessing Officer has applied method provided under Rue 8D(2) (iii) @ 0.5% of average value of investments to compute disallowance of other expenses. We do not find any error in the findings recorded by the authorities below, which is in accordance with law and hence, we are inclined to uphold the order of the learned CIT(A) and reject the grounds taken by the assessee in respect of disallowance of other expenses under Rule 8D(2)(iii) of IT Rules, 1962. Appeal filed by the assessee is partly allowed. - I.T.A.No.1018/Chny/2019 - - - Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2013. 6 The learned Commissioner of Income-tax (Appeals) erred in observing that the borrowed funds were mixed with the common funds and therefore it cannot be said that borrowed funds were not used for investment in the firms when the borrowed funds were directly given as loans to others on interest as evidenced from the bank statements submitted, 7. The Assessing officer is not justified in making the disallowance of ₹ 7,66.662/- under section 14A r/w Rule 8D(2)(iii). 8. The appellant submits that none of the expenses claimed can be attributable to earning of exempted share income from the firms and the appellant had not incurred any expenditure for investment in the firms to get any exempted income. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation to exempt income and further share of profit from partnership firm cannot be equated with dividend income which is exempt u/s.10(34) of the Act to make disallowance of expenditure in relation to such income. The Assessing Officer was not however, convinced with explanation furnished by the assessee and according to him, as per sub-section (2) and (3) of section 14A, disallowances contemplated under section 14A shall be determined in accordance with prescribed formula provided under Rule 8D and accordingly computed disallowance under Rule 8D(2)(ii) towards interest expenditure of ₹ 8,56,808/- and made further disallowance of ₹ 7,66,662/- under Rule 8D(2)(iii) @ 0.5% of average value of investments and thus, made total disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards interest paid on loans, which was specifically borrowed for the purpose of business. The learned AR further submitted that if at all interest disallowance is to be made, only net interest expenditure needs to be considered as held by the Hon ble Gujarat High Court in the case of PCIT Vs. Nirma Credit Capital P.Ltd. in T.C.Appeal No.409 514 of 2017 vide order dated 31.08.2017. Further, if net interest expenditure is considered, interest expenditure incurred by the assessee is less than interest income earned for the year and hence, there cannot be any disallowance towards interest expenditure. As regards other expenses, the Assessing Officer has failed to make out a case of any specific expenditure which is having direct nexus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer has adopted Rule 8D(2)(ii) of IT Rules, 1962 to determine interest disallowance, but fact remains that for the year under consideration interest paid by the assessee is less than interest income earned for the year. It is well settled principle of law that for the purpose of applying clause (ii) of Rule 8D prior to its amendment w.e.f 02.06.2016, amount of expenditure by way of interest would be interest paid by the assessee on borrowings less taxable interest earned during the financial year. This view is fortified by the decision of Hon ble Gujarat High Court in the case of PCIT Vs. Nirma Credit Capital P.Ltd, where the Hon ble Court held that only net interest expenses is to be considered for the purpose of making disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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