TaxTMI 
TaxTMI 
2017 (3) TMI 78
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.... The AO noted that the assessee during the year had earned dividend income of Rs. 82,29,300/-. However, the assessee had not disallowed any expenditure for earning of this tax exempt income. He accordingly applied rule 8D and computed the disallowance under section 14A at Rs. 51,84,673/-, out of which a sum of Rs. 24,16,733/- was disallowed as interest expenditure under rule 8D(2)(ii) and the remaining sum of Rs. 27,67,940/- was disallowed on account of administrative expenditure under rule 8D(2)(iii). Being aggrieved by the above disallowance, the assessee preferred appeal before the Ld. CIT(A). 3. The Ld. CIT(A) upheld the disallowance so made by the AO. The assessee, thus, has come in appeal before us on this issue. 4. We have considered the rival submissions of the Ld. representatives of the parties. The Ld. A.R. of the assessee has submitted that Rule 8D of the I.T. Rules 1962 is not applicable for the year under consideration. We find force in the above contention of the Ld. A.R. 5. In the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) the Hon'ble Bombay High Court has held that Rule 8D r.w.s. 14A(2) is not arbitrary or unreasonable but can be applied only if th....
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.... borrowing and lending of funds on interest apart from its investment activity. He further noted that the amount of interest paid during the year was more than the amount of interest received. He further observed that a company which is engaged in the activity of borrowing and lending of funds was supposed to receive interest at a higher rate than the interest paid. He therefore observed that the borrowed funds must have been used for investment purposes, the income from which has been claimed as short term capital gain/long term capital gain; he therefore held that the excess payment of interest made by the assessee was not an allowable business expenditure and accordingly disallowed a sum of Rs. 33,39,258/-. Being aggrieved by the above disallowance made by the AO, the assessee preferred appeal before the Ld. CIT(A). 10. The Ld. CIT(A) noted that the assessee had used the borrowed funds not only for further lending but also for investment in securities which yielded exempt income. He further observed that since the disallowance under section 14A of a sum of Rs. 51,84,673/- has already been made by the AO, hence no further disallowance was called for under section 37(1). He accor....
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....he disallowance of interest should be made with reference to net interest only. 16. The issue involved in this appeal is regarding the computation of disallowance under rule 8D. As observed above while deciding the appeal of the assessee bearing ITA No.8461/M/10, we have already restricted the overall disallowance under section 14A to the extent of 5% of the exempt income which also includes the interest disallowance, if any, that is to be made in the case in hand. Therefore, in view of the above, this appeal of the Revenue has become infructuous and the same is accordingly dismissed. 17. Now coming to the cross appeals for A.Y. 2008-09. ITA No.6013/M/2011 (Revenue's appeal) & ITA No.5598/M/2011 (Assessee's appeal) 18. The issues raised in the above stated appeals are identical as raised in appeals relating to A.Y. 2007-08. The assessee has agitated the disallowance made by the AO under section 14A of the Act whereas the Revenue has come in appeal agitating the action of the Ld. CIT(A) in allowing the interest expenditure incurred by the assessee on the investments made. 19. As discussed above, the assessee is an investment and finance company. It had made strategic investmen....
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....investment as the investment being the business of the assessee is an allowable expenditure under section 36(1)(iii) of the Income Tax Act. So far as the disallowance under section 14A is concerned, no doubt the assessment year under consideration is A.Y. 2008-09 and the rule 8D is applicable for the year under consideration. However, in the light of the decisions referred to above, the expenditure incurred by the assessee in relation to strategic investments is held to be an allowable business expenditure. The same therefore cannot be held to be for investment purposes or with the object of earning of dividend/tax exempt income, but the same, in the light of above referred to Judicial decisions can safely be said to be related to the business activity of the assessee and no disallowance, therefore, is attracted on such an income u/s 14A of the Act. Further, the Hon'ble Bombay High Court in the case of "CIT vs. India Advantage Securities Ltd." in ITA No.1131 of 2013 vide order dated 17.03.2015 has upheld the finding of the Tribunal holding that while making the disallowance under rule 8D, the shares held as stock in trade should not be considered, only the shares taken as investme....