TaxTMI 
TaxTMI 
2022 (1) TMI 414
X X X X Extracts X X X X
X X X X Extracts X X X X
....tances of the case and in law, the Ld. Pro CIT erred in exercising his jurisdiction for initiating proceedings under section 263 of the Act, without appreciating that the Ld. AO had passed the assessment order after making due enquiries and verification of records and hence the said order is not erroneous and/or prejudicial to the interest of the revenue. The Appellant prays that the order passed under section 263 is not in consonance with the provisions of the Act and hence liable to be quashed. 3* On the facts and in the circumstances of the case and in law, the Ld. Pro CIT erred in initiating proceedings under section 263 of the Act on the ground that interest paid of Rs. 3,62,71,333 should be allowed as deduction in computing business income and not from Income from other sources. The Appellant prays that the Ld. AO was correct in allowing deduction of interest expenses of Rs. 3,62,71,333 while computing income under the head 'Income from Other Sources' and hence, the assessment order cannot be treated as erroneous and / or prejudicial to the interest of the revenue. 4* On the facts and circumstances of the case and in law, the Ld. Pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Rs. 2,18,33,217 and (2)Interest expenses considered in other sources Rs. 1,44,38,116/- totaling to Rs. 3,62,71,333/-. As per the provisions of Section 57(iii), the same needs to be expended wholly and exclusively for the purpose of earning such Income. Hence the expenditure claimed on account of Interest payments amounting to Rs. 3,62,71/333/- is not an allowable deduction u/s.57(iii) from out of the Income from other sources, even though, the same can be allowed under the head 'Income from business', 3.1 Thus, according to the CIT, Income from business and therefore deduction u/s. 80IA had been computed at a higher figure to this extent and Income from other sources had been computed by allowing expenditure of Rs. 3,62,71,333/- which is not allowable. 3.2. In view of the above, the CIT held that the order passed by the AO u/s 143(3) of the Act dated 30.11.2016 was apparently erroneous in so far as it is prejudicial to the interests of revenue as per the provisions of section 263 of IT Act. Accordingly, a show cause notice u/s. 263, dated 13-11-2018 was issued to the assessee as to why the Assessment order dtd. 30-11-2016 should not be revised as per the issu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t income. Therefore, the expenditure claimed on account of Interest payments amounting to Rs. 3,62,71,333/- (2,18,33,217 + 1,44,38,116) cannot be allowed as deduction u/s. 57(iii) even though the same can be allowed under the head 'Income from business'. Therefore, the Income arrived in the Assessment order has to be recomputed as under: Income under the head - Business: Loss returned from business Rs. 1,10,08,215 Add: Disallowance U/s. 14A Rs. 2,67,05,035 Income from business Assessed Rs. 1,56,96,820 Less: Interest expenditure claimed under the head "income from other sources" Rs. 3,62,71,333 Loss from business Rs. 2 05,74,513 Income under the head-Other sources: Income admitted u/s 56(2)(viia) Rs. 96,21 893 Interest received - ICD, FDR & Others Rs. 21,19,85,085 Income from other sources Rs. 22,16,06,978 computation of Total Income: Loss from business Rs. 2,05,74,513 Income from other sources Rs. 22,16,06,978 Income from house property Rs. 13,63,103 Taxable income Rs. 20,23,95,568 e, Thus, the income should be assessed at Rs. 20,23,95,568/- as agains....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ove, the above said interest expenditure of Rs. 3,62,74,333/- have been expended wholly and exclusively for the purpose of earning interest income and allowable under section 57(iii) under the head "Income from Other Sources" and not business expenditure as proposed by your honour. 5. After going through the submissions made in this regard, the CIT observed that it is clear that the assessee is unable to show how the interest expenditure was claimed can be allowed against the income from other sources. The assessee failed to prove the nexus between the interest income and expenditure incurred. The assessee claimed expenditure u/s.57(iii) of Rs. 3,62,71,333/-(Interest on term loan from IDFC Anthiyur unit Rs. 2,18,33,217 + Interest expenses considered In other sources Rs. 1,44,38,116) from out of the other sources amounting to Rs. 21,19,85,085/-(Interest received on FDs, ICDs & CCD) as against the correct claim of such interest expenditure against business income. Therefore, this expenditure has to be allowed against Income assessed under the head income from business as narrated in the show cause notice re-produced supra, and the deduction u/s 80lA deserves to be recomputed accor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rders of revenue authorities. The crux of the issue to be adjudicated is whether the CIT is right in holding that the interest expenditure claimed by the Assessee u/s 57(iii) is not allowable under the head "income from other sources" ? The CIT observed that the interest receipts were arrived at after claiming the expenditure of i) interest on term loan from IDFC-Anthiyur unit Rs. 2,18,33,217/- and ii) interest expenses considered in other sources Rs. 1,44,38,116/- totalling to Rs. 3,62,71,333/-. According to CIT, as per the provisions of Section 57(iii), the same needs to be expended wholly and exclusively for the purpose of earning such income. Hence the expenditure claimed on account of interest payments amounting to Rs. 3,62,71/333/- is not an allowable deduction u/s.57(iii) from out of the Income from other sources, even though, the same can be allowed under the head 'Income from business'. Since the assessee failed to prove the nexus between the interest income and expenditure incurred, the CIT set aside the order of AO, who allowed the same under the head "income from other sources". Even before us, the ld. AR of the assessee failed ot prove the nexus between the int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et Investments Pvt. Ltd., 165 ITD 25 (Del)(SB). two questions were posed and considered by the Special Bench which are as follows:- "(i) Whether the expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profit u/s 115JB of the Act? And (ii) Whether investments which did not yield any exempt income should enter into the computation under Rule 8D while arriving at the average value of investment, income from which does not form part of the total income? 11. The Special Bench answered the aforesaid questions as follows:- "(i) We answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962. (ii) Only those investments are to be considered for computing the average value of investment which yielded exempt income during the year. 11.2 Respectfully following the above decisions, we hold that the disallowance made u/s 14A should not be added to the book profits computed under section 115JB. Ther....