2015 (7) TMI 905

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....99,72,855/-, comprising interest and indirect administrative expenditure at Rs. 81,16,222/- and Rs. 18,56,633/- respectively. The assessee having not maintained any separate books of account or record in respect of investment activity in shares, liable to yield income not forming part of the total income, an estimate qua indirect expenses, i.e., as attributable to such income, in the view of the ld. CIT(A), stood validly made by taking recourse to rule 8D, mandatory for the current year, by the A.O. The assessee's contention that it had not utilized any borrowed funds for investment in shares was found by him as not substantiated by the assessee, with its' balance-sheet suggesting otherwise. The disallowance being confirmed thus, the assessee is in further appeal. 3. Before us, the ld. Authorized Representative (AR) would at the outset submit that the assessee's case is covered by the decision by the Tribunal in the case of Dy. CIT vs. Damani Estates & Finance (P.) Ltd. (in ITA No. 3029/Mum/2012 dated 17.07.2013, since reported at [2013] 25 ITR 683 (Mum)(Trib)) , placing a copy of the said order on record. The tribunal in that case, he would continue, while confirmin....

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....ssional fees (Rs.88.97 lacs), even as was done by the tribunal in the said case, restricting it to 10% of the amount referable to r.8D(2)(iii). 4. We have heard the parties, and perused the material on record. 4.1 Our first observation in the matter is that the decision by the tribunal in Damani Estates & Finance (P.) Ltd. (supra) shall apply in the facts and circumstances of the case; the view canvassed therein, i.e., the applicability of section 14A where the shares are held as stock-in-trade, having been since upheld by the larger bench of the tribunal in D.H. Securities (P) Ltd. (supra). In fact, there is no dispute with regard to this. There is, as such, a clear case in favour of the assessee for scaling down the disallowance qua interest attributable to the average investment in shares, representing the stock-in-trade of the assessee's business. With regard to the assessee's contention for restricting the disallowance to below 20% of such interest, we consider the assessee's plea as largely misconceived. The turnover ratio per se has no bearing on the interest expenditure, a part whereof, i.e., as relatable to the investment in shares, is subject to disallow....

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....tes & Finance (P.) Ltd. (supra) (vide the latter part of para 5.6, pgs. 14-15 of the order), to which para reference, albeit selectively, was made by the ld. AR. We may reproduce the same as under: 'Continuing further, the part of the rule prescribing the ratio in respect of indirect expenditure (r. 8D(2)(iii)) cannot be altered on account of hardship (reference is drawn to the section of the judgment in Godrej & Boyce (supra) on the constitutionality of sub-sections (2) & (3) of section 14A and rule 8D/pgs. 113 - 123). Even so, the rule prescribes the same as the ratio of indirect expenditure required to support an investment. We say so as the expenditure prescribed for disallowance is based only on one variable, i.e., the value of the investment (on an average). Investment activity, it may be appreciated, is much stabler in character in comparison to the trading activity, which involves continuous churning of funds and, thus, activity, requiring a much higher level of organizational support/expenditure. Investments, on the other hand, are long term and strategic, requiring only periodic review of performance with reference to the investment objective/s, besides on account ....

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.... the assets 'held as investment'. A person may make investment in shares and the shares so purchased may be held either as "Stock-in-trade' or 'Investment'. The word 'investment' in this rule refers to the making of purchase of shares and not holding it as investment." We decide accordingly.' A plea for adopting the said ratio (i.e., 1/5) was similarly, after explaining the reasons for the same, discountenanced by the tribunal in the case of HSBC Invest Direct (India) Ltd. (in ITA Nos. 3485/Mum/2012 and 3944/Mum/2012 dated 17.10.2014) and Hathway Investment Pvt. Ltd. (in ITA Nos. 262/Mum/2012 and 8662/Mum/2011 order dated 17.10.2014). It needs to be emphasized that the prescription under r.8D(2)(iii) is not based on the volume or quantum of expenditure incurred by the assessee, but, as tribunal clarifies, only on one variable, i.e., investment in the relevant assets (on an average). As such, raising a claim for a lower disallowance, i.e., than that as statutorily prescribed per r.8D(2)(iii), a constitutionally valid provision, would not obtain. The only exception, which would in fact be in terms of r. 8D itself, would be where the expenditure i....