TaxTMI 
TaxTMI 
2019 (7) TMI 1859
X X X X Extracts X X X X
X X X X Extracts X X X X
....otice was issued under sec. 142(1) of the assessee on 29.05.2015 & 03.07.2015 alongwith detail questionnaire. 3. Assessee is a builder and developer engaged in the business of real estate also having partnership firms, dividend income as well as salary, interest & profit from various partnership firms during the year under consideration. Upon verification of the Balance Sheet it appears that the assessee invested a sum of Rs. 21,60,18,051/- in Shares/Securities/Mutual funds of different companies and various partnership firms. An amount of interest expenditure debited in the profit and loss account of Rs. 70,89,595/- was also noticed. Dividend income as exempt under sec. 10(34/35) of the Act,1961 of Rs. 4,50,706/- was also claimed by the assessee and share in profit from various partnership firms as exempt income of Rs. 1,58,93,427/- was also claimed. The Ld. AO was of the view that deduction of the expenditure cannot be allowed if the same is incurred on account of exempt income which does not form the part of total income and therefore, the provision of Sec. 14A would be applicable. Explanation was called for to that effect. However, such explanation was not found acceptable o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0,91,89,203 91,44,657 1,32,284 4,50,706 Capital as on 31/03/2013 6,38,88,830 Non-Interest Bearing Fund 10,13,99,660 Total 16,52,88,490 Investment as on 31/03/2013 from which exempt profit earned 20,91,89,203 Interest Paid (A) 70,89,595 Interest Received from partnership Firm from whom exempt profit received Rs. 1,58,93,427 91,44,657 Interest Received from Others 8,32,766 Total Interest received (B) 99,77,423 Net Interest from Partnership Firm 91,44,657 - 70,89,595 = 20,55,062 Net Interest Income (A)-(B) 99,77,423 - 70,89,595 = 28,87,828 The appellant's investment in those firms which are contributing to the exempt income as on 31st of March, 2013 was Rs. 20,91,89,203/-. Though in the balance sheet investment in the partnership firm has shown Rs. 21,59,67,051/-. The balance investment in partnership firm is Rs. 67,77,487/- which has not given any profit during the year. Hence not taken in the figure of Rs. 20,91,89,203/-. Investment in company is Rs. 45,00,000/- invested earlier there is dividend received on these shares Rs. 4,50,000/-. Hence investment should not be included. Ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely: A x B C Where A= amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; 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; C= the average of total assets as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erial on record. We find that CIT(A) while granting relief to the Assessee has given a finding that no nexus has been established by the AO which the amount incurred by the Assessee for earning the tax free income. He has further noted that in the Assessee's case the interest income was more than interest expense and thus the Assessee was having net positive interest income and therefore the same cannot be considered for disallowance and for which he place reliance on the decision of Kolkata Tribunal in the case of Trading Apartment Limited and the decision of Tribunal in the case Morgan Stanley India Securities Private Limited. He however considered the administrative expenses to be 0.5% of the average investments and disallowed the same." Further, we would like to reproduce a portion of the order of Hon'ble Delhi High Court pronounced in the case of Maxopp Investment Ltd, and Others Vs. CIT as follows: "Sub-s. (2) of s. 14A provides the manner in which the AO is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if one examines the provision carefully, one would find that the AO is req....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is the amount of expenditure directly relating to income which does not form part of the total income. The second is being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest (other than the amount of interest included in clause (i) incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee.The third component is an artificial figure-one half percent of the average of the investment, income from which does not or shall not form part of the total income, appearing in the balance-sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under section 14A of the Act. It is, therefore, clear that in terms of the rule, the amount of e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts and circumstances of the case, when the interest income was more than the interest expenditure then the AO was not justified to invoke the provisions of Section 14A read with Rule 8D of IT Act. Hence We request pl delete the addition made under Rule 8D(2)(ii)of IT Act of Rs. 58,55,888/- Before invoking the provisions of sec 14A the AO is required to satisfy himself regarding correctness of claim of assessee in respect of such expenditure in relation to income which doesn't form part of total income under this Act. Here no such satisfaction was demonstrated by the AO in the Assessment Order. Particularly when there is no interest expenditure was claimed but there is Net Interest income of Rs. 28,87,828 ( 99,77,423 - 70,89,595 ) and also there is no any administrative expense incurred as shown in the P&L A/c attached herewith(Pg. No.03). As per the chart shown above the appellant has received taxable income from firms that is interest income Rs. 91,44,657/-and remuneration Rs. 1,32,284/- total Rs. 92,76,941/-and tax free income i.e. profit from partnership firm being Rs. 1,58,93,427/-. In this scenario the Ahmedabad Tribunal in case of Shri Vishnu AnantMaha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d from the partnership firms as mentioned in chart above, being a partnership firm, is governed by the Indian Partnership Act 1932. There is no provision in the said Act as regards the contribution of capital by the partners. In other words, the Act does not contemplate or stipulate capital contribution by the partner as one of the conditions for a partnership firm. Section 4 of the Indian Partnership Act defines partnership to mean the relation between the persons who have agreed to share profit of business carried on by all or any of them acting for all Therefore, the sharing'of profit or losses is the determinative factor for the existence of the partnership firm, all the four partnership firms were formed as Partnership firms vide Partnership Deeds attached on page no. as mentioned at the last of the submission given the ref. of enclosures. Nowhere in the any clauses of the partnerships deeds that contribution of money towards capital or loan were the conditions of admittance of the new partners for sharing of profits by the partners Alt the partners, including the appellant are entitled to the profit sharing as per the partnership deeds and the same were not dependent on c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... incurred is only Rs. 32,235/- and on the contrary the Ld. AO disallowed under Rule 8D(2)(iii) Rs. 8,92,513/-.The disallowance cannot be more then the expenditure incurred by the appellant. Rule cannot over ride the provision of sec. 14A. Ace to sec 14A disallowance from the expenditure incurred this means expenditure to be disallowed only upto the expenditure incurred only. It is illogical to disallow which has not been claimed. Hence at the most Rs. 32,235/- can be disallowed under Rule 8D(2)(iii) r.w.s 14A. Reproducing last para from ITAT Delhi Modern Info Technology Pvt. Ltd. Vs ITO; ITANo.:4294/Del/2012 "12. By applying the propositions laid down, to the facts of the case we hold that the disallowance cannot exceed the total actual expenditure incurred and claimed by the assessee. In this case the total expenditure claimed by the assessee in the Profit and Loss account is Rs. 45,977/-. Thus the disallowance should be restricted to this amount. Thus we allow this ground inpart." Hers in our case the expenditure claimed in profit and loss account is Rs, 32,235/-. Hencethe disallowance cannot be more than Rs. 32.23 5/-, also these expenditures are not r....