TaxTMI 
TaxTMI 
2020 (1) TMI 1049
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.... that provision of Sec. 14A(2) read with Rule 8D cannot be invoked unless the A.O. is dissatisfied about the correctness of the disallowance made by the assessee himself which is correctness of the suomoto disallowance. The A.O. demonstrated her dissatisfaction about the correctness of the suo-moto disallowance in her assessment order when she has elaborately discussed why additions of Rs. 37,40,940/- is being made u/s 14A of the I.T. Act." 3. Brief facts of the case are that the assessee has obtained loans of Rs. 17.15 crores on which interest of Rs. 1.44 crores has been paid. The assessee has used this amount towards extending interest free loans & advances, investments and capital work. The share capital and the reserves & surplus of the assessee are to the tune of Rs. 397.96 crores. Details of own funds Amount(lacs) Share Capital 10,707.46 Reserves & Surplus 29,088.75 Total interest free funds available 39,796.21 Total interest paid 144 Investments: Advance given to DLF Ltd. 117.53 Investment of immovable property 649.14 Investment in Partnership firm 51.89 Advance recoverable 2070.24 Other Advances 81.....
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....rgued that the predominant purpose of expenditure was different from that of the assessee who is in the regular business of power generation through gas turbines and running of multiplex theatres. 10. Heard the arguments of both the parties and perused the material available on record. 11. The assessee is in the business of real estate, entertainment & power generation and the loans & advances include investments in the property business of the assessee. Hence, it can be said that the advances recoverable included the advances which are business advances on which no interest is disallowable. It was also part of the record that another advances interest has been charged by the assessee as found out by the ld. CIT (A) on going through the Schedule 17 of the balance sheet. Since, the loans & advances have been given on account of commercial expediency and notional interest can be charged on such advances or interest can be disallowed u/s 36(1)(iii). In the case of Taparia Tools Vs JCIT CA No. 6366 of 2003, the Hon'ble Apex Court observed that while examining the allowability of deduction, the Assessing Officer is to consider the genuineness of the business borrowings and that th....
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....he amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is pot satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-....
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....l determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules. 31. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of Rule 8D, we find that the method for....