TaxTMI 
TaxTMI 
2014 (9) TMI 1255
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....7,05,447, Rs. 1,37,91,280 and Rs. 1,53,96,2364 was claimed to be exempt by the assessee under S.10(34) of the Act for the assessment years 2008-09, 2009-10 and 2010-11 respectively. In the computation of total income filed alongwith the said returns, disallowance of Rs. 1 lakh was offered by the assessee under S.14A on account of expenses claimed to be incurred for earning exempt dividend income in each of the three years under consideration. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has claimed a deduction on account of interest amounting to Rs. 2,19,24,127, Rs. 47,79,539 and Rs. 22,55,897 in assessment years 2008-09, 2009-10 and 2010-11 respectively. The Assessing Officer, therefore, required the assessee company to explain the reasons for not disallowing any expenditure on account of interest as well as other administrative expenses, which might have been incurred for earning exempt dividend income, as required by the provisions of S.14A read with Rule 8D of the Income-tax Rules. In reply, it was submitted on behalf of the assessee company that no expenditure was incurred by it for earning the exempt dividend income. I....
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.... (ii) Interest expenditure which is not directly attributable to particular Receipt is worked out as below: A) Interest expenditure during the year Rs. 47,79,539/- B) The average value of investment is Rs. 76.48 Cr. C) The average value fo total assets Rs. 182.46 Cr A X BC = 4779539 X 76.48 182.46 Rs. 20,03,392/- (iii) One-half percent of average value of investment is (Rs. 76.48 X 0.5%) Rs. 38,24,278/- Total Disallowance Rs. 58,27,670/- Less : Disallowed by the assessee Rs. 1,00,000/- Net Disallowance Rs. 57,27,670/- ...." Computation of disallowance made by Assessing Officer for assessment year 2010-11 ""(i) The amount of expenditure directly relating to exempted in....
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.... the companies declaring dividend. (d) In the assessment year 2004-05 the Appellate Tribunal vide its order dated 09.01.2009 discussed at length the order of Special bench in Daga Capital Management Pvt. Ltd. and held that the said decision is not applicable to the facts of the assessee's case and upheld the disallowance at Rs. 50,000 only. (e) Section14A does not confer any authority upon the Assessing Officer to deem or assume certain expenditure to have been incurred in relation to taxfree income. Common expenditure incurred at the head office cannot be broken up artificially to attribute or apportion a part thereof to the earning of tax-free income on the assumption that such part of the common expenditure was incurred in relation to the tax-free income. Not only the 'incurring' (i.e. factual spending) of the expenditure but also its relationship to the exempt income must be clear and must be capable of being ascertained on the face of it without involving any further mental exercise. The burden would seem to be on the Assessing Officer to not only show that some expenditure was factually incurred but also to show its relationship with the income exempt from t....
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.... correct and the same was accordingly confirmed by the learned CIT(A). 6. The learned CIT(A) thus partly sustained the disallowance made by the Assessing Officer under S.14A by applying Rule 8D for all the three years under consideration, and aggrieved by the orders of the learned CIT(A), the Revenue as well as the assessee are in appeal before the Tribunal. Revenue's Appeals: 7. We have heard the arguments of both the sides and also perused the relevant material on record. In its appeals, the Revenue has raised the solitary common issue challenging the relief allowed by the learned CIT(A) to the assessee, in terms of disallowance made by the Assessing Officer under S.14A on account of interest as computed by applying Rule 8D(2)(ii). In this regard, it is observed that the entire investment fetching tax free return in the form of dividend was claimed to be made by the assessee company upto financial year 2005-06, and after verifying this factual position, the learned CIT(A) directed the Assessing Officer not to consider interest paid by the assessee on the funds borrowed after the financial year 2005-06 for the purpose of making disallowance under S.14A of the Act. Similar....