TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1859
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....essee 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 on the ground that the assessee has debited inte....
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....estment 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. Therefore we have not included this here also. Similarly investment in partnership Firm was Rs. 13,32,94,946/-. (Considering only those investments which derive exempt income Sarabhai Holdings Pvt. Ltd. v. ACIT, ITA No.....
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....tal 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 appearing in the balance sheet of the assessee, on the firstday and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the 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 t....
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....nsidered 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 required to determine the amount of such expenditure only if the AO. having regard to the accounts of the assesses, is not 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 totalincome under the Act. In other words, the requirement of the AO embarking upon a determination of the amount of expenditure incurred in relation to exempt i....
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....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 expenditure in relation to exempt income has two aspects- (a)direct, and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule(2) of rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment. Section 14A even prior to the introduction of sub-sections (2) and (3) would require the Assessing Office to first reject the claim o....
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....e 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 AnantMahajan V/s ACIT Baroda [2012]16ITR 621 (Page No. 87 to 93) has held as under:- "In such a situation, provision contained in section 14A will come into operation and any expenditure incurred in earning the share income will have to be disallowed. Thus, we agree with the learned CIT(A) that the provision contained in section 14A is applicable to the facts of the case. Further, it has been held in the case of Godrej & Boyce Mfg. Co. Ltd. (supra) that all facts ....
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....eed 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 contribution of funds made by the partners. Clauses of the partnership deeds deals with the, capita/loans introduced by the partners to the firm, relevant clauses of the partnership deeds clearly states that the partners may introduce capital and or give Loan to the firm which shall carry interest @ 9%,12% or 18% annum or any other rate has been mutually agreed upon". The appellant has earned Rs. 91,44,657/- from a trim whose profit is exempt, in comparison to interest paid Rs....
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....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 related to theincome which is not forming part of total income. Pls. see recent circular Notification No. So 1949 (E) [F.No.370142/7/2016-TPL], DATED 2-6-2016. (Section 14A disallowance can't exceed total exp.; CBDT specifies new method for disallowance computation) "In exercise of the powers conferred by section 295 read with sub-section (2) of section 14A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules, 1962, name....