TaxTMI 
TaxTMI 
2015 (11) TMI 1058
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....arious additions. In the appeal filed by the assessee before the ld. CIT(A), the First Appellate Authority granted partial relief to the assessee. Aggrieved by the order passed by the ld.CIT(A), both the parties are in appeal before us in respect of issues decided against each of them. 5. We shall first take up the appeal filed by the assessee. The first issue relates to disallowance made under section 14A of the Act. During the year under consideration, the assessee received income from tax free bonds to the tune of Rs. 47.17 crores and dividend income of Rs. 6.92 crores both aggregating to Rs. 54.09 crores. The assessee claimed the same as exempt u/s 10 of the Act. However, the assessee did not disallow any expenditure relating to the above said exempted income as required u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The assessee contended before the AO that no part of interest income is required to be disallowed since investments were held as trade stock and further it had earned net interest income in excess of interest expenditure. The AO, however, did not accept the contentions of the assessee and accordingly, computed the disallowance in terms of Ru....
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.... and hence the assessee cannot take a different stand for the purposes of sec. 14A of the Act. He further submitted that the disallowance is required to be made under Rule 8D(2)(iii) towards administrative expenses, even if the assessee proves that it has got sufficient interest free funds. He further submitted that the claim of the assessee that it was having sufficient interest free funds and also the claim that the securities are held as stock in trade have not been examined by the AO/CIT(A). 9. We have heard rival contentions and perused the record. The assessment year under consideration being AY 2008-09, the provisions of Rule 8D are applicable as per the decision of Hon'ble Bombay High Court rendered in the case of Godre Boyce Mfg. Co. Ltd (supra). However, a careful perusal of the provisions of sec. 14A(2) would show that the assessing officer shall determine the amount of expenditure incurred in relation to such income which does not form part of income as per rule 8D, if the AO , having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee. 10. In the instant case, the assessee has earned exempted income of Rs. 54....
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.... Less Operation expenses 15% 274.27 Profit earned 1554.20 Deduction u/s 36(1)(viii) 20% 301 The AO did not accept the above said workings. He noticed that the average advances worked out by the assessee did not tally with the figures of term loans reported in the Balance Sheet, viz., Rs. 32,442/- crores. Further, since the term loans reported in the Balance sheet would include ineligible advances, the AO took the eligible advances at 50% of Rs. 32,442/-, i.e., Rs. 16,221/- crores. The AO also did not accept the net yield on advances of 4.36% worked out by the assessee. The AO noticed that the assessee had reported interest income of 6731 crores and interest expenditure of 6361 crores. Accordingly the AO took the view that the difference between the two figures cited above, i.e., Rs. 370 crores was the net yield on advances. After allowing deduction of 15% for expenses, the profit derived from the eligible business was worked out at Rs. 314.50 crores. Accordingly the AO restricted the deduction u/s 36(1)(viii) at 20% of Rs. 314.50, viz., Rs. 62.90 crores. It may be noticed that the assessee had claimed a deduction of Rs. 301 crores. 14. T....
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....xpenses towards eligible business on a reasonable basis, since they are incurred from common pool of funds and also for all activities of the assessee. Hence, in our view, the workings given by the assessee, AO and Ld CIT(A) on approximate basis cannot be approved. Accordingly, in our view, this issue also requires reconsideration at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore this matter to the file of the AO for his reconsideration. The assessee is directed to cull out the interest income actually earned from out of eligible advances. From the gross interest income so culled out, the assessee is directed to deduct the cost of funds and expenses on a reasonable basis and then work out the deduction u/s 36(1)(viii) of the Act. The assessee is also directed to furnish all the explanations and information to the assessing officer in order to enable him to satisfy himself with the workings furnished by the assessee. Accordingly, after affording necessary opportunity of being heard to the assessee, the assessing officer may take appropriate decision on this issue in accordance with the law. 16. We shall now take up the....
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.... for the reason that the assessee did not furnish the audit report prescribed u/s 80LA of the Act along with the return of income. The Ld CIT(A) noticed that the assessee has furnished the audit report before the AO before finalisation of the assessment order and accordingly, by following the decision rendered by the Hon'ble Delhi High Court in the case of Cit Vs. Web Commerce India Pvt Ltd (2009/179 Taxmann 310). The Hon'ble Delhi High Court in the above said case has held that the filing of audit report is only directory and not mandatory. Since the assessee has filed the audit report before finalisation of assessment order, we are of the view that the Ld CIT(A) was justified in directing the AO to allow the claim. 20. The next issue relates to the deduction claimed u/s 36(1)(viii) of the Act. This issue has been restored back to the file of the AO in the earlier paragraphs while considering the appeal filed by the assessee. 21. The last issue relates to the deduction claimed u/s 36(1)(viia) of the Act. The AO allowed the deduction under this section to the extent of the amount actually provided for in the books of account. Section 36(1)(viia) provides a cap for allowing de....