TaxTMI 
TaxTMI 
2018 (1) TMI 1231
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....31.01.2012 passed in ITA Nos. 3475/Ahd/2004 & 750/Ahd/2007 and CO Nos. 355/Ahd/2004 & 262/Ahd/2011. 2. The brief facts of the case are that the learned CIT(A) has decided the appeal of the assessee arisen against the assessment order passed under Section 143(3) of the Income-tax Act in the Assessment Year 2001-02 vide order dated 28.09.2004. Against this order of the CIT(A), Revenue has filed an appeal bearing ITA No.3475/Ahd/2004. On receipt of notice, the assessee has filed CO No.355/Ahd/2004. Now, the assessee has filed Miscellaneous Application No.28/Ahd/2013 in the appeal of the Revenue and Miscellaneous Application No.40/Ahd/2012 in its cross-objection, i.e., CO No.355/Ahd/2004. 3. The learned CIT(A) has decided the appeal of th....
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....reduced the disallowance to Rs. 1,17,91,794/-. The Department was not satisfied with this order; hence came up in appeal before the Tribunal. The assessee has filed cross-objection for the retention of the disallowance. 6. The Tribunal has, in principle, concurred with the findings of the learned CIT(A) and recorded the following observations:- "6. We find that the decision of Ld. CIT(A) is on this basis that proportionate interest on investment of Rs. 1793.51 lacs should be on the basis of average rate of interest paid by the assessee. The average rate of interest has been worked out by Ld. CIT(A) @ 6.57% and disallowance at this rate was confirmed by him and this has been worked out at Rs. 1,17,91,794 is against the amount of ....
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....us, there is a net interest income of Rs. 96,69,744/-. A reference to the P&L account has been made in the Miscellaneous Application. On the strength of the judgment of Hon'ble jurisdictional High Court in the case of Pr. CIT vs. Nirma Credit & Capital (P.) Ltd., rendered in Tax Appeal Nos. 409 & 514 of 2017 on 31.08.2017 (reported in [2017] 85 taxmann.com 72 (Gujarat)), it was contended that for the purpose of making disallowance under Section 14A of the Act, only net interest expenditure is to be considered. He pointed out that there is no net interest expenditure in the case of the assessee. It has only net interest income; therefore, there could not be any disallowance. According to learned Counsel for the assessee, the Tribunal failed ....
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....on'ble Gujarat High Court has decided the construction of Section 14A, subsequent to the decision of the Tribunal, but it has interpreted that expression "amount of expenditure by way of interest" would be construed as net interest expenditure for making disallowance under Section 14A read with Rule 8D of the Income-tax Rules. The discussion made by the Hon'ble Court in paragraph 11 of the judgment reads as under:- "11. It is in this context that the computation of factor 'A' in the said formula assumes significance. In plain terms, 'A' represents the amount of expenditure by way of interest ignoring the interest expenditure already included in clause(i). The expression used by the legislature is amount of expenditu....
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....ining the amount of expenditure incurred by the assessee by way of interest, would amount to distorting the factor 'A' provided by the legislature in clause(ii) of sub rule(2) of rule 8d. It may be possible for variety of reasons that in a given financial year the assessee might have earned interest income which is higher than the interest paid on the borrowed funds. This may be because assessee's investments may have earned interest at rates higher than the interest rate paid by the assessee on the borrowings or may also be because assessee's investment in earning interest may be higher in value than the assessee's borrowings, inviting interest. In such a situation, essentially, the assessee would have earned more inter....