TaxTMI 
TaxTMI 
2012 (9) TMI 968
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.... 14A read with Rule 8D to Rs. 68,385/- as against disallowance of Rs. 33,07,764/-. ld. Commissioner of Income Tax(A) has failed to take cognizance of subsection (3) of section 14A which specifies that even if the assessee makes a claim that no expenditure has been incurred in earning the exempted income, sub-section (2) of section 14A shall apply, meaning thereby, disallowance u/s 14A(1) is called for." 2. Brief facts of the case giving rise to this appeal are that the assessee company submitted its return declaring total loss of Rs. 8,98,920. The return was processed u/s 143(3) of the Income Tax Act, 1961(hereinafter referred to as the Act). The case was selected for scrutiny and a notice u/s 143(2) of the Act was issued and served....
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....which includes dividend from the shares held as investment. The company, during the course of assessment proceeding has itself disallowed Rs. 68,385/- u/s 14A of the IT Act by filing Revised Computation of Tax. The Expenses includes DMAT expenses, proportionate interest expenses. Further, interest on Loan of Rs. 114.58 Lacs, which is directly attributable to Investment, is capitalised along with the Investment and not charged to P&L Account. The procedure adopted is very logical and defined and the Assessee has not charged Interest Expenses attributable to Investment to P&L account. Hence no hypothetical figure can be worked out for any disallowances. 3.2 It was also submitted that disallowance with respect to Rule 8D of IT Rules can be i....
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....ot to earn dividend and consequently sec. 14A does not apply. The AO did not establish any nexus between the borrowed funds and the investments in the tax free bonds. Further, Interest Expenses on Loan taken for Investment is already capitalised with the Investment and not claimed as Business Expenses by the assessee Therefore, the apportionment on a pro rata basis is improper in the absence of anything brought by the AO. Also Section 14A r.w.r. 80 would be applied for AY 2008-09 and not for earlier years. 3.4 I have gone through the assessment order as well as the written submission of the appellant and also the case laws relied on by the appellant. It has been held in the case of Godrej and Boyce that rule 8D is applicable from A.Y 08-....
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....le basis u/s 14A(1) of the Act. The DR finally submitted that the Commissioner of Income Tax(A) was also wrong in limiting the disallowance to Rs. 68,385 in this regard. 5. The assessee's representative submitted that the Hon'ble Supreme Court in the case of Godrej & Boyce Manufacturing Co. Ltd. rightly held that Rule 8D of the Income Tax Rules inserted w.e.f. 24.3.2008 cannot be regarded as retrospective because it enacts an artificial method of estimating expenditure relatable to tax free income and it applies w.e.f. AY 2008-09. He also submitted a copy of the judgment of ITAT Delhi 'G' Bench in the case of ITA No. 4539/Del/2010 DCIT vs Jindal Photo Ltd. and supported the impugned order. 6. The assessee's representative submitted....
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....rmine the quantum of disallowance expenditure by a reasonable method having regard to the facts and circumstances of the case and which had not been done in this case. 8. The assessee's representative also submitted that in the case of Commissioner of Income Tax vs Walfort Share & Stock Brokers (P) Ltd.(2010) 192 Taxman 211(SC), it was held that the words "expenditure incurred" in Section 14A of the Act refer to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for under sections 30 to 37; a return of investment or a payback is not under the ambit of 'expenditure incurred' in terms of section 14A of the Act. The AR also submitted that in this case, the Hon'ble Apex Court held that for attract....
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....ning expenses and accepting the same, the ld. Commissioner of Income Tax(A) limited the disallowance to this extent only by taking notice of this fact that the interest expenses on loan taken for investment has already been capitalized by the assessee. 10. In view of above discussion, we are inclined to hold that the disallowance made by the Assessing Officer was based on hyper technical approach and also ignoring the essence of Section 14A(1). The Assessing Officer also ignored this fact that the assessee has capitalized substantial amount of interest paid on loans taken for investment and the same was not claimed as business expenses by the assessee. Therefore, the apportionment on a pro rata basis was improper in the absence of anything....