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of <h1>Tribunal limits interest expense disallowance, emphasizes adherence to Rule 8D(2)(iii)</h1> <h3>M/s. Mansarover Investment Ltd. Versus ITO, Ward 6 (4), New Delhi</h3> M/s. Mansarover Investment Ltd. Versus ITO, Ward 6 (4), New Delhi - TMI Issues:1. Disallowance under section 14A of the Income Tax Act, 1961.2. Computation of disallowance under Rule 8D(2)(iii).3. Authority to disturb the calculation provided in Rule 8D(2)(iii).Analysis:1. The assessee, a Non Banking Financial Company (NBFC), primarily functioning as a holding company, had income from dividends and interest on loans. The company suo moto disallowed expenses related to earning dividend income under section 14A. The Assessing Officer increased the disallowance amount, contending that interest expenses were directly related to investments only. The dispute arose regarding the calculation of disallowable interest under Rule 8D(2)(i). The Tribunal found the need for a detailed investigation to determine the direct relation of interest expenditure to exempted income. Consequently, the issue was remanded to the Assessing Officer for a thorough examination to establish the direct attribution of interest expenses to specific income sources.2. The assessee contested the computation of disallowance under Rule 8D(2)(iii) at Rs.35,45,959, while the assessee had disallowed Rs.19,81,276. The total administrative expenses were Rs.23,19,542. The Assessing Officer mechanically applied Rule 8D(2)(iii) to calculate disallowance exceeding the total expenditure claimed by the assessee. The Tribunal observed that the disallowance of expenditure cannot surpass the total incurred and claimed amount. Citing relevant case laws, the Tribunal directed the authorities to restrict the disallowance to the actual expenditure of Rs.23,19,542, emphasizing that section 14A limits disallowance to the actual expenditure incurred.3. The dispute regarding the authority to disturb the calculation provided in Rule 8D(2)(iii) was raised. The Tribunal held that the Assessing Officer and the CIT (A) lacked the authority to alter the calculation prescribed in Rule 8D(2)(iii). The Tribunal dismissed this ground, emphasizing that the calculation as per Rule 8D(2)(iii) should not be disturbed by the authorities.In conclusion, the Tribunal partly allowed the appeals of both the assessee and the revenue for statistical purposes, emphasizing the need for a detailed investigation into the direct attribution of expenses to specific income sources and restricting disallowances to actual expenditures incurred by the assessee.
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