2026 (1) TMI 1368

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....ounds of appeal is confined to the action of the learned Commissioner (Appeals) in restricting the disallowance made under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, and in deleting the consequential adjustment made by the Assessing Officer while computing the book profit under section 115JB of the Act. 3. The material facts, briefly stated, are that the assessee company is engaged in the business of real estate development. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had made investments in a partnership firm, namely M/s Rajesh Investment, and also in Rare Township Pvt. Ltd. The Assessing Officer issued a show cause notice calling upon the assessee to explain ....

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....f this proposition. 6. The learned Commissioner (Appeals), after considering the submissions and the judicial precedents, held that the provisions of section 14A were applicable since the share of profit or loss from a partnership firm does not form part of the total income under section 10(2A). However, he also held that the disallowance under section 14A cannot exceed the amount of income which does not form part of total income. Accordingly, he restricted the disallowance to Rs. 71,04,282, being the amount relatable to the partnership firm, and deleted the balance. In so far as the adjustment made under section 115JB was concerned, the learned Commissioner (Appeals) deleted the same by following the decision of the Special Bench of th....

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.... section 14A is founded on the principle of proximate cause and that what is required to be disallowed is only that expenditure which has a live and direct nexus with income which does not form part of the total income. The expression "in relation to" occurring in section 14A has been interpreted to be of wide amplitude, though not without limits, and it is only such expenditure which bears a causal connection with exempt income that falls within the mischief of the provision. 10. In so far as investments in partnership firms are concerned, the Hon'ble jurisdictional High Court in Pr. CIT v. D.B. Realty (P.) Ltd. has categorically held that section 14A applies even in cases where investments are in the nature of strategic investments or ....