Bhoruka Investment Ltd. v. DCIT

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The Tax Publishers2018 TaxPub(DT) 0241 (Kol-Trib)div class=Section1> Bhoruka Investment Ltd. v. Dy. CIT INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt incomeInterest expenses under rule 8D(ii)----No disallowance under rule 8D(ii) for interest expenses would be made where assessee was having sufficient own funds to invest in shares and securities from which dividend income was earned by it.--Assessee invested funds and earned exempt income but he could not show any expenditure as regards interest on borrowed fund was concerned. AO disallowed certain sums as interest expenses. CIT(A), however, allowed assessee's claim that investment in shares and securities were made by assessee from its own fund and no interest expenditure was incurred, hence, no disallowance under section 14A read with rule 8D(ii) would be made.Held: As far as disallowance of interest expenses under rule 8D(2)(ii) was concerned, it was clear from the summarised balance sheet of assessee from financial years 2008-09 to 2011-12 that assessee had non-interest bearing fund sufficient to cover the investments made in shares. The fact that assessee had enough own funds which was more than the investments which yielded tax-free income, there could be no disallowance of interest expenses in terms of rule 8D(2)(ii). Income Tax Act, 1961 Section 14A Income Tax Rules, 1962 Rule 8D *Followed:*CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom-HC) : 2009 TaxPub(DT) 1275 (Bom-HC) and CIT v. HDFC Bank Ltd. (2014) 49 taxmann.com 335 (Bom) and Pr. CITv. Rasoi Ltd. ITAT 0.109 of 2016 in GA No. 633 of 2016, dt. 15-2-2017. *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2012-13 INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt incomeInvestments not yielding exempt income----It was only the investment which yielded tax-free income that should be considered for working out the average value of investment while applying the rule 8D(2)(iii).--Assessee earned exempt income as well as exempt income from investment made by assessee in shares, etc. AO, however, disallowance other expenses under section 14A read with rule 8D(iii) CIT(A) held that assessee's contention that investment which did not yield exempt income would be excluded, was to be accepted. *Held:* It was only the investment which yielded tax-free income that should be considered for working out the average value of investment while applying the rule 8D(2)(iii). The plea of assessee to exclude investments which had not yielded any exempt dividend income during the previous year while working out average value of investments for the purpose of applying rule 8D(2)(iii), should be accepted. Tribunal held the same new and directed accordingly. Income Tax Act, 1961 Section 14A Income Tax Rules, Rule 8D *Followed:*Dy. CIT v. REI Agro Ltd. in ITA No. 1811/Kol/2012, dt. 14-5-2013, G.A. No. 3022 of 2013 Judgment, dt. 23-12-2013 and Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Del-HC) : 2015 TaxPub(DT) 3520 (Del-HC). *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2012-13 INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure already added in P&L A/c Demat charges----While computing total income the demat charges were already added in P&L A/c, making the addition for the same sum as disallowance under section 14A would amount to double addition, hence, addition, was to be deleted.--Assessee incurred certain amount as demat charges which was already debited in P&L A/c, whereas AO again disallowed the same under section 14A. CIT(A) sustained the disallowance.Held: It was clear from the order of AO which was the computation of total income that a sum of Rs. 3,266 had already been added to the profit as per profit and loss account. Making the addition of the very same sum as disallowance under section 14A would be a double addition and therefore addition was directed to be deleted. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2018 TaxPub(DT) 0241 (Kol-Trib)div class=Section1>

Bhoruka Investment Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeInterest expenses under rule 8D(ii)----No disallowance under rule 8D(ii) for interest expenses would be made where assessee was having sufficient own funds to invest in shares and securities from which dividend income was earned by it.--Assessee invested funds and earned exempt income but he could not show any expenditure as regards interest on borrowed fund was concerned. AO disallowed certain sums as interest expenses. CIT(A), however, allowed assessee's claim that investment in shares and securities were made by assessee from its own fund and no interest expenditure was incurred, hence, no disallowance under section 14A read with rule 8D(ii) would be made.Held: As far as disallowance of interest expenses under rule 8D(2)(ii) was concerned, it was clear from the summarised balance sheet of assessee from financial years 2008-09 to 2011-12 that assessee had non-interest bearing fund sufficient to cover the investments made in shares. The fact that assessee had enough own funds which was more than the investments which yielded tax-free income, there could be no disallowance of interest expenses in terms of rule 8D(2)(ii).

Income Tax Act, 1961 Section 14A

Income Tax Rules, 1962 Rule 8D

Followed:CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom-HC) : 2009 TaxPub(DT) 1275 (Bom-HC) and CIT v. HDFC Bank Ltd. (2014) 49 taxmann.com 335 (Bom) and Pr. CITv. Rasoi Ltd. ITAT 0.109 of 2016 in GA No. 633 of 2016, dt. 15-2-2017.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeInvestments not yielding exempt income----It was only the investment which yielded tax-free income that should be considered for working out the average value of investment while applying the rule 8D(2)(iii).--Assessee earned exempt income as well as exempt income from investment made by assessee in shares, etc. AO, however, disallowance other expenses under section 14A read with rule 8D(iii) CIT(A) held that assessee's contention that investment which did not yield exempt income would be excluded, was to be accepted. Held: It was only the investment which yielded tax-free income that should be considered for working out the average value of investment while applying the rule 8D(2)(iii). The plea of assessee to exclude investments which had not yielded any exempt dividend income during the previous year while working out average value of investments for the purpose of applying rule 8D(2)(iii), should be accepted. Tribunal held the same new and directed accordingly.

Income Tax Act, 1961 Section 14A

Income Tax Rules, Rule 8D

Followed:Dy. CIT v. REI Agro Ltd. in ITA No. 1811/Kol/2012, dt. 14-5-2013, G.A. No. 3022 of 2013 Judgment, dt. 23-12-2013 and Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Del-HC) : 2015 TaxPub(DT) 3520 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure already added in P&L A/c Demat charges----While computing total income the demat charges were already added in P&L A/c, making the addition for the same sum as disallowance under section 14A would amount to double addition, hence, addition, was to be deleted.--Assessee incurred certain amount as demat charges which was already debited in P&L A/c, whereas AO again disallowed the same under section 14A. CIT(A) sustained the disallowance.Held: It was clear from the order of AO which was the computation of total income that a sum of Rs. 3,266 had already been added to the profit as per profit and loss account. Making the addition of the very same sum as disallowance under section 14A would be a double addition and therefore addition was directed to be deleted.