TaxTMI 
TaxTMI 
2018 (4) TMI 738
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....not deducted such interest payment/expenses relating to the investment in shares for earning interest. Therefore, expenditure relatable to investment in shares and securities is required to be disallowed U/s. 14A of the Act. r. w. Rule 8D of the Income Tax Rules 1962. As such, vide point No. 4 of notice u/s.142(1) dated 07/01/2015, the assessee was requested to furnish working of disallowance u/s.14A of the Act and also show cause as to why disallowance u/s.14A of the Act should not be worked out invoking Rule 8D of I. T. Rules, 1962. The assessee vide letter dated 29/01/2015 submitted as under: 1. Disallowance u/s.14A (Sr. No.1) and Point no 5 of Questionnaire dated 20.09.2013] 1.1 Vide Point No.1, your good selves have asked to explain as to why the expenditure incurred for earning this exempt income should not be disallowed u/s 14A r.w. Rule 8D in view of the fact that the assessee has earned exempt income of Rs. 42,510/-. In this regards, the assessee company submits as under: 1.2 The break-up of investments held as on the last date of year under consideration for your immediate perusal is as under:- Particulars As on 31.03.....
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.... on in the assessment year under consideration. The same can be evidenced from the quantum of purchases of clothes and garments made by the assessee company and the quantum of sales and other income generated by such trading activity. The income generated from such trading activity is duly offered as taxable business income and so all expenses which is attributable to earning of such taxable business income should be allowable as business expense. 1.6 The assessee company further submits the breakup of the expenses in the table presented hereunder wherein the expenses have been bifurcated into those which are directly and specifically related to the trading of clothes and garments and into those which are general business expense which are to be incurred for routine activities of any organization along with the remarks in regards to the treatment of these expenses in the Computation of taxable business income- Particulars Amount (Debited to P/L) 31-03- 11 General Routine Business Expenses Remarks Employees Emoluments 43,77,566 Directly related to trading of Clothes and Garments &....
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.... 9,331 General Expenses Business Print Stationery Asman &. 1,16,243 1,16,243 General Expenses Business Professional Fees -Asman 1,00,677 1,00,677 General Expenses Business 7,70, 088 7,70, 088 Rent Paid For business Rent Expense premises Rent Expense - Delhi Property 9,31,200 Disallowed in ROI Repairing Expense 37,987 Directly related to trading of Clothes and Garments & the retail stores. Repairs Air Con 73 559 Directly related to trading of Clothes and Garments & the retail stores. Repairs to Building 7,67,021 Directly related to trading of Clothes and Garments & the retail stores. Security Charges 3,03,193 Directly related to trading of Clothes and Garments & the retail stores. Service & Maintenance Exp 29,700 29,700 General Business Expenses Signboard Exp 1,386 Directly related to trading of Clothes and Garments & the retail stores. Stamp a....
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.... assessee company. These general business expenses had to be incurred even if there were no investments made by the assessee company. The quantum and nature of general business expenses remain unchanged and unaffected by the investment activity of the assessee company and so no portion of general administration charges is attributable to the investment activity of the assessee company and so has no relation with the exempt income of the assessee company. Hence, no portion of administrative expenses is attributable to the earning of exempt income and so any disallowance made under the provisions of Section 14A of the Act is not justified. 1.9 Without prejudice to above, as regard the administrative expenditure, it is stated that the assessee company has average investment of Rs. 66,05,28,155/-. Therefore, by applying rule 8D the said disallowance would work out to Rs. 33,02,640/- being 0.5% of the average investment. However, the total administrative expenditure is Rs. 1,11,82,941/-. Out of this, expenditure of Rs. 9,31,200/- has been treated separately while computing the business income and therefore the same has been disallowed while computing the business incom....
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....A) amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; 415112 388867 (B) the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year; P.Y. Invest. 1321041310 C.Y. Invest. 3264110 Total 1324305420 2 662152710 PY+CY (C) the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; P.Y. Assets 1370736239 C.Y. Assets 42947255 Total 1413683494 2 706841747 PY+CY (ii) Result (A) (B) (C) AxB/C Interest Exp.(A....
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....2.64 lacs had been made by the revenue this year from its own funds in its subsidiary companies only; that thus, these investments too were strategic investments. 9. Assessee was engaged in the business of trading of cloth and readymade garments; that its entire turnover of Rs. 94.85 crore came from this business; that on the other hand, as explained before, the Appellant's investments were confined to strategic investments in its subsidiaries only. 10. In support of its contention ld. AR cited an order of Co-ordinate Bench in ITA No.1950/Ahd/2012 in matter of Amjay Medi.Max (India) Pvt. Ltd. vs. DCIT, in this case it was held: "Disallowance u/s 14A - Held that:- The issue in dispute is squarely covered in favour of the assessee by the decision of the Hon'ble High Court rendered in the case of Correctech Energy [2014 (3) TMI 856 - GUJARAT HIGH COURT] as observed that if no tax free income was earned by the assessee, then no expenses can be construed as incurred by the assessee, because plain reading of section 14A provides that if an assessee incurred expenditure in relation to earning of tax free income then such expenditure would not be allowed. The assessee di....