TaxTMI 
TaxTMI 
2025 (3) TMI 923
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....ed is more than interest expense for the year, no interest disallowance was warranted u/s. 14A. 1.3 The Id. CIT(A) further erred in ignoring that no disallowance of administrative expenses ought to have been made by the Id. AO in excess of expenditure debited to Profit and Loss Account. 1.4 The Appellant prays that the disallowance of Rs. 35,67,897/- made u/s. 14A r.w.r. 8D be deleted. 2. GROUND NO. 2: DISALLOWANCE OF INTEREST OF Rs. 7,67,050/- u/s. 36(1)(iii): 2.1 On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in confirming the disallowance of Rs. 7,67,050/- although u/s. 36(1)(iii) as against the one made u/s. 14A by the Id. AO, which itself was not sustainable at first place. 2.2 The Id. CIT(A) failed to appreciate and ought to have considered that the interest expense incurred by the Appellant was for the purpose of its business and therefore ought to have been allowed. 2.3 The Appellant prays that disallowance of interest of Rs. 7,67,050/- made u/s. 36(1)(ii) be deleted. GENERAL: The Appellant craves leaves to add to, alter, amend and / or delete the above grounds of app....
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....) Rs. 5,32,20,195 Value of investments as on 31.03.2015 (4) Rs. 3,89,03,565 0.5% of average of (3) & (4) =Rs. 4,60,61,880 0.5XRs. 4,60,61,880 (5) Rs.2,30,309 Disallowances u/s 14A (Rs. 41,04,638+Rs.2,30,309 Rs. 43,34,947 4.3. The assessee carried the matter before the ld. CIT(A). The ld. CIT(A) after considering the detailed submissions and facts, was of the opinion that interest expenditure under Rule 8D(2)(i) amounting to Rs. 41,04,638/- is uncalled for and deleted the addition on account of average investment amounting to Rs. 2,30,309/-. However, the ld. CIT(A) was of the opinion that the interest paid on the capital contribution in Mahavir Developers cannot be allowed as such being not related with any commercial expediency and further disallowed Rs. 35,67,897/- u/s 14A of the Act. 5. Before us, the ld. Counsel pleaded for netting off of the interest expenditure and further contended that the disallowance for want of commercial expediency is without any basis as the capital contribution in a partnership firm itself shows that there was a business need. Per contra, the ld. D/R supported the findings of the AO and placed relian....
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....ujarat High Court in the case of PCIT vs. Nirma Credit & Capital (P.) Ltd. [2017] 85 taxmann.com 72 (Gujarat), on similar set of facts, has held as under:- "* Section 14A, pertains to expenditure incurred in relation to income not includible in total income. Sub-section (1) of section 14A provides that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. As per sub-section (2) of section 14A, if the Assessing Officer having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure, he would determine the same in accordance with the method as may be prescribed. Such method has been prescribed under rule 8D.[Para 8] Sub-rule (1) of rule 8D substantially uses the same language as is used in sub-section (2) of section 14A and further provides that in such a situation the expenditure to be disallowed would be determined as per the provisions contained in sub-rule (2). The expenditure in relation to income not forming part of the total in....
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....said term shall have to be interpreted in the manner that will bring about the correct legislative intent and equitable application thereof. As in case on hand, when the assessee pays interest on borrowings as also earns taxable interest on investments made by him during a particular year, his interest expenditure has to be considered as one which is the net of interest paid minus interest earned. Any other view would give the unintended computation of factor 'A' provided in clause (ii) of sub-rule (2) of rule 8D which will in turn distort the computation of disallowable expenditure under the said clause. It is true that the legislature has not given any further indication as to how such amount of expenditure would be ascertained. Therefore, reasonable test would have to be applied to interpret the provision as is most likely to give effect to legislative intent for disallowance of expenditure by an assessee for earning income which is not accountable to tax. It is true that investment made by the assessee out of such borrowed funds will continue to be factored in denominator in the formula provided in clause (ii) of sub-rule (2) since factor 'C' which forms the den....