TaxTMI 
TaxTMI 
2014 (6) TMI 185
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....x Appellate Tribunal has erred in law in holding that the provisions of rule 8D were applicable prospectively and not retrospectively ? (iii) Whether the Assessing Officer is empowered to make disallowance under section 14A of the Income-tax Act by bifurcating the expenditure in a reasonable manner towards earnings the taxable income and exempt income even in the absence of rule 8D of the Income-tax Rules ?" 2. We have heard the learned counsel, Shri Varun Patel for the appellant, and Shri Bandish Soparkar for the assessee-respondent. 3. This appeal arises in the following factual background. The assessee, for the assessment year 2006-07, filed the return of income. A notice was issued under section 143(2) of the Act by the Assessing Officer calling for certain details. The assessee had shown the exempt income being tax-free interest on bonds, exempted under section 10(15) to the tune of Rs. 1.01 crores (rounded off) and dividend exempt under section 10(23D) of Rs. 12.98 crores (rounded off), the total sum worked out to Rs. 14 crores (rounded off). The Assessing Officer had sent show-cause notice as to why the disallowance under section 14A would no....
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....other such cost, the Assessing Officer should have computed the disallowance as per rule 8D of the Income-tax Rules. The appellant's two arguments that (a) exempt income of Rs. 6.12 crores is related to 'Sujen Project' which is still under construction and all the expenditure related to it were not claimed but capitalised, hence, the provisions of section 14A of the Act cannot be applied since the expenditure incurred in relation to income that does not come within the scope of the total income. (b) The Assessing Officer has not established any nexus between the utilisation of borrowed funds and earning of dividend income, which is a pre-requisite to the application of section 14A of the Act are required to be analysed in view of the Daga Capital case, supra. The appellant relied on various case law for these two main arguments but with due respect, this latest judgment by the hon'ble Income-tax Appellate Tribunal, Mumbai Special Bench, has considered all such aspects and case law. The disallowance under section 14A of the Act has, therefore, to be computed as per rule 8D of the Income-tax Rules as under : As per rule 8D(2) : (i) Direct amount of expendi....
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.... that the assessee was having shareholding funds to the extent of Rs. 2607.18 crores and the investment made by it was to the extent of Rs. 195.10 crores. In other words, the assessee had sufficient funds for making the investments and it has not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the Revenue which earned in the interest on bonds of dividend income. 8. With regard to the disallowance of 1 per cent. of the administrative expenses averred to have incurred on account of the earning of interest, there is nothing on record to indicate that there has been in fact any actual expenditure incurred by the assessee for earning tax-free income of Rs. 14 crores. It is also to be noted that out of the total amount of exempt income of Rs. 14 crores, the assessee could point out that 6.12 crores (rounded off) was earned by Sujen project which was under construction for which no expenditure had been claimed and for the remaining income of Rs. 7.88 crores which consist of dividend and tax-free interest, no part of the expenditure appears to have been made towards the investment activity as emerging from the ....
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....ted the expenditure in two parts-first related to investment of Rs. 5907.18 lakhs in foreign subsidiaries, it was held that the dividend income from such subsidiaries is taxable in India and that therefore, section 14A would have no applicability. The remaining amount pertain to investment of Rs. 38 crores-(rounded off) made in Indian subsidiaries. In this respect, the Tribunal noted that the assessee had to its disposal, own interest-free funds many times over the investment in question. As per the balance-sheet as on March 31, 2005, the assessee had interest-free fund of Rs. 929.57 crores. Such being the facts, the Tribunal, in our opinion, committed no error. No question of law, therefore, arises." 10. In Tax Appeal No. 118 of 2013 in case of CIT v. UTI Bank Ltd. since reported in [2014] 2 ITR-OL 366 (Guj), the issue pertaining to disallowance under section 14A and the interpretation of rule 8D of the Income-tax Rules was decided in favour of the assessee and against the Department holding therein that in the absence of any finding as to how the administrative expenses have been incurred to earn the exempt income, disallowance made by the Assessing ....
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....empt income under section 10(35) of the Act arising out of mutual fund investment and, therefore, held the opinion that the expenditure incurred for earning the exempt income should be disallowed under section 14A of the Act and when no bifurcation was made by the assessee, the Assessing Officer disallowed the total expenditure under such head and added back the entire sum being the amount of salary of the directors to the income of the assessee. Both the Tribunal and the Commissioner did not approve such decision, relying on the judgment of the Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (supra) by holding that in the absence of rule 8D of the Income-tax Rules, no disallowance can be made under section 14A of the Act. When such decision was under challenge before this court it held thus (page 366 of 2 ITR-OL)) : "4. With respect to the proposition that rule 8D is not retrospective in operation, we have no hesitation in agreeing with the decision of the Bombay High Court in the case of Godrej Boyce and Manufacturing Co. (supra). Previously also, we had an occasion to deal with the said rule and held as and the Bombay High Court has done. That, however, ....