TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 2003
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.... assessee together as they address a common issue. The grounds are that (i) both the lower authorities erred in holding that the disallowance made under Rule 8D under the normal computation is required to be applied while making an addition under clause (f) to Explanation 1 below section 115JB in the MAT computation, (ii) both the lower authorities erred in misreading the provisions of law relating to computation of minimum alternate tax u/s 115JB, (iii) the Assessing Officer (AO) be directed to accept the addition made by the appellant in its return of income under clause (f) to Explanation 1 below section 115JB, amounting to Rs. 2,91,97,300/- while computing MAT, (iv) in any event, the AO be directed to delete the disallowance made u/s 14....
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....otal income of Rs. 47,11,06,988/- in the normal computation of income. It is pertinent to find out how the AO arrived at the disallowance of Rs. 2,49,38,699/- u/s 14A. During the course of assessment proceedings, he found out that the appellant had earned exempt income of Rs. 58,64,44,748/- [dividend u/s 10(34)] and Rs. 104,79,05,552/- [long term capital gains u/s 10(38)]. The appellant had disallowed Rs. 2,91,97,301/- as expenses attributable to the exempt income. In response to a query raised by the AO to explain as to why disallowances should not be made u/s 14A r.w. Rule 8D, the appellant submitted vide letter dated 15.01.2013 that it had disallowed reasonable expenses as per tax audit report and therefore further disallowance is not c....
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....xmann.com 118 (Delhi), Mrinalini Trading Co. Pvt. Ltd. v. DCIT-3(2), Mumbai (ITA No. 1211/M/2014) dated 26th July 2017, Bombay Dyeing & Mfg. Co. Ltd. v. DCIT-2(1)(1), Mumbai (ITA No. 1716/M/2017) dated 27th October 2017. 7. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 8. We have heard the rival submissions and perused the relevant material on record. In Vireet Investment (P.) Ltd. (supra), the Special Bench of the ITAT, Delhi has held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated u/s 14A r.w. Rule 8D and only those investments are to be considered for computing average value of investments which yielded exempt income durin....
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....pply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue in as much as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to Section 14A of the Act." In view of the above position of law, we direct the AO to delete the disallowance of Rs. 50,45,000/- made by him under Rule 8D(2)(ii). 8.2 Finally we come the disallowance made by the AO under Rule 8D(2)(iii) in the normal computa....
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....le for enactment of section 14A in Godrej & Boyce v. DCIT (2010) 194 Taxman 203 as under: "Section 14A was enacted by the Parliament in order to overcome the judgments of the Supreme Court in the cases of CIT v. Indian Bank Ltd. AIR 1965 SC 1473, CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 and Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450/109 Taxman 145, in which it was held that in the case of a composite and indivisible business, which results in earning of taxable and non-taxable income, it is impermissible to apportion the expenditure between what was laid out for the earning of taxable income as opposed to non-taxable income. The effect of section 14A is to widen the theory of the apportionment of expenditure....
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....gment their Lordships explained Rule 8D as under: "In the affidavit-in-reply that had been filed on behalf of the revenue, an Explanation has been provided of the rationale underlying rule 8D. It had been stated with reference to rule 8D(2)(ii) that it would be difficult to allocate the actual quantum of borrowed funds that have been used for making tax-free investments. It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken excluding any expenditure by way of interest which is directly attributable to any particular income or receipt (for example - any aspect of the assessee's business such as plant/machinery, etc.). As regards rule 8D(2)(iii), it had be....