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TMI Blog2021 (1) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 16,23,470/- made under section 14A of the Act. 2. The authorities below erred in taking the interest paid of Rs. 10,76,939/- as attributable to investments in the firms, the share income from which is exempt from tax u/s 10(2A) of the Act for disallowance u/s 14A r/w Rule 8D(2)(ii). 3 The authorities below should have seen that the borrowals on which interest was paid were directly advanced to various parties for interest and such interest of Rs. 27,62,380/- was offered for tax as income. 4. The appellant submits that there is a direct nexus between the borrowals and advances/loans given and therefore the interest paid has to be adjusted against the interest received and offered for tax. 5 The appellant submits that no part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered." 3. Brief facts of the case are that the assessee company is engaged in the business of development of property filed its return of income for the assessment year 2015-16 on 28.10.2015 declaring total income of Rs. 34,15,840/-.The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that assessee has earned exempt income being share of profit from partnership firm, whereas not disallowed expenditure incurred in relation to income which do not form part of total income under the Income Tax Act, 1961 (hereinafter referred to as "the Act"), therefore, called upon the assessee to explain as to why disallowances contemplated under section 14A of the Act shall not be disallowed in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt income being share of profit from the partnership firm and hence, question of disallowance u/s.14A of the Act does not arise. The learned CIT(A), after considering the relevant submissions of the assessee and by relied upon certain judicial precedents including the decision of Hon'ble Supreme Court in the case of M/s. Godrej & Boyce Manufacturing Co.Ltd., in Civil Appeal No.7020/2011 upheld the additions made by the Assessing Officer towards disallowance of expenditure u/s.14A of the Act. 5. The learned AR for the assessee submitted that the learned CIT(A) has erred in confirming the additions made by the Assessing Officer towards disallowance of expenditure including interest under Rule 8D(2) (ii) & (iii) ignoring the fact that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below along with the case laws cited by the learned counsel for the assessee . There is no dispute with regard to the fact that assessee has earned exempt income being share of profit from the partnership firm which is exempt u/s.10(2A) of the Act. Therefore, once there is exempt income which do not form part of the total income under the Act, then disallowance of expenditure in respect of said income required to be computed u/s.14A, read with Rule 8D of IT Rules,1962. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that provisions of section 14A has no application to exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 8. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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