TaxTMI 
TaxTMI 
2026 (10) TMI 356
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....ition of Rs. 23,77,67,259/- made u/s 14A(2) r.w. Rule 8D(2)(ii)?" 3. The brief facts of the case are as under : 3.1. During the course of assessment proceedings, the Assessing Officer noticed that the assessee earned the dividend income of Rs. 79,20,56,505/-, received profit from partnership firm amounting to Rs. 18,38,067/- and received interest amounting to Rs. 26,08,28,104/-. Out of these three items, so far as dividend income and partnership profits are concerned, the same were not included in income liable to be taxed in view of the provisions of Section 10(36) and Section 10[2A] of the Income Tax Act, 1961 (for short 'the Act'). So far as interest receipts are concerned, it was noticed by the Assessing Officer that the assessee had set off the same against the interest expenses of Rs. 25,77,86,144/-. The Assessing Officer also noted that the investment in the shares of Mundra Port & Special Economic Zone Limited had gone up from 576.12 Crores to 933.27 Crores whereas, the assessee ceased to hold shares in Adani Enterprises Limited, which were valued at Rs. 701.12 Crores in the beginning of the year. 3.2. Considering such facts, the Assessing Officer proceeded on the ....
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....anding Counsel Ms. Maithili Mehta for the appellant-Revenue submitted that, after considering the fact that the assessee has only the exempt income from the dividend and the profit from share of the partnership firms, the expenditure incurred on interest of Rs. 25,77,86,144/- was rightly considered by the Assessing Officer, for the purpose of application of Section 14A of the Act read with Rule 8D(2)(ii) of the Rules. 4.2. It was submitted that the Assessing Officer has arrived at such finding on the basis that no separate accounts were maintained by the assessee for availing the loan as well as the advancement of such amount to the other concern, on which the interest was earned and therefore, the Assessing Officer was justified in not permitting the assessee to set off the interest expenses against the interest income earned by the assessee. 4.3. It was therefore submitted that both the CIT(Appeals) and the Tribunal have erred in law in considering the netting of the interest income, by permitting the assessee to set off the interest expenses, for deletion of the addition made by the Assessing Officer under Section 14A of the Act read with Rule 8D(2)(ii) of the Rules. It wa....
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.... this provision and therefore these decisions are not relevant now. It is not in dispute that in the appellant's case of rule 8D read with section 14A is applicable since appellant earned substantial exempt income and did not disallow any expense. Accordingly the judicial decisions relied upon by both the sides are not discussed here. The disallowances made were in respect of interest Rs. 23,77,67,259 and other expenses Rs. 7,26,15,653. Subsequently assessing officer passed order under section 154 and reduced the disallowance out of other expenses to Rs. 20,15,150. Therefore appellant's main grievance in this appeal is against disallowance of interest of Rs. 23,77,67,259 computed by the AO under rule 8D(2)(ii). Against this disallowance, appellant submitted that it had earned interest of Rs. 25.77,88,144 by advancing money to Adani Infrastructure Developers P Ltd. (AIDPL) from loan taken from IDFC Ltd. on which interest of Rs. 25,77,88,144 is paid. Hence there is one to one nexus between loan taken from IDFC and loan given to AIDPL, so no disallowance of interest expense u/s 14A read with rule 8D(2](ii) can be made. The facts relating to borrowings from ID....
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....ground. Since disallowance under section 14 A read with rule 8D is to made as discussed earlier, the disallowance of other expenses amounting to Rs. 20,15,150 is confirmed." 7. The aforesaid findings arrived at by the CIT(Appeals) are upheld by the Tribunal, after considering the facts of the case, as reproduced herein above. 8. In case of Nirma Credit & Capital (P.) Ltd (Supra), this Court in similar facts, has held as under : "11. It is in this context that the computation of factor 'A' in the said formula assumes significance. In plain terms, 'A' represents the amount of expenditure by way of interest ignoring the interest expenditure already included in clause (i). The expression used by the legislature is "amount of expenditure by way of interest". When the legislature has therefore, used this expression "amount of expenditure", the 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....
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....s of a company were purchased for the purpose of gaining control over the said company and incidentally tax free dividend income was generated. The assessee had contended that the dominant intention for purchasing the shares was not for earning the dividend but to gain control over the business in the company in which the shares were purchased. The Supreme Court held that the purpose for which the shares were purchased was inconsequential. As long as such investment generated tax free income, disallowance of expenditure for making such investment would be justified. This issue does not arise in the present case. However, it is true that while disposing of bunch of appeals by the said judgment the Supreme Court also considered the correctness of the view of the Punjab & Haryana High Court in case of Avon Cycles Ltd. v. CIT [2015] 53 taxmann.com 297/228 Taxman 368 (Mag.). It was the case in which the Assessing Officer had invoked Section 14A read with Rule 8D and apportion the expenditure between investments made for earning tax free income and the rest. The CIT (Appeals) had deleted the entire disallowance upon which in the appeal filed by the Revenue the Tribunal restored ....