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2014 (11) TMI 985 - ITAT MUMBAIDisallowance of interest expenditure - Held that:- The assessee is able to show, with reference to its accounts, of the borrowed capital having financed a particular asset (or asset class), the interest cost relatable thereto would necessarily have to be consider as expended toward the same. Upon this being conveyed by the Bench during hearing, the ld. Authorized Representative (AR), the assessee's counsel, would submit that the borrowed capital in the instant case is in fact wholly for business purposes, being toward the assessee's hotel project at Kodaikanal and the real estate business at Mumbai. We observe no findings in the matter on record. So, however, if, as claimed, the borrowed capital is in the form of dedicated funds, i.e., specified activities and/or assets, so that the same stands utilized for the same purpose/s, and which would be where the terms and conditions of the borrowing have been met, there could be no presumption with regard to the borrowed funds having been used for any purpose other than the same and, accordingly, no part of the interest could be considered as having not been utilized for business purposes and, hence, toward financing the investment/s. Thus e matter is restored back to the file of the A.O. to allow the assessee an opportunity to present and exhibit its case as stated hereinabove, the onus for which would only be on it. - Decided in favour of assessee for statistical purposes. Disallowance u/s. 14A is in respect of indirect administrative expenditure, covered under Rule 8D(2)(iii) - Held that:- The same stands made applying the said rule. While the A.O. effected the disallowance invoking the said rule, mandatory for the current year, the ld. CIT(A), in appeal, rejected the assessee's contention of the rule being arbitrary. Further, the A.O. having rendered his satisfaction with reference to the facts of the case, rule 8D stood triggered and, accordingly, the disallowance was to be, in his view, confirmed. No specific contention in this regard stood made before us. The assessee failing to substantiate its claim of having not incurred any expenditure in relation to income not forming part of the total income, we find no infirmity in the orders of the authorities below and, accordingly, confirm the disallowance of the indirect administrative expenditure, which is the subject matter of disallowance under r.8D(2)(iii), i.e., in principle. - Decided against assessee. Adjustment to the book profit qua the disallowance effected u/s. 14A - Held that:- Both the income and expenditure, determining the net profit, which forms the basis for computing income under the Act, are only as per the books of account. The provision of section 14A only codifies the law, which is otherwise inherent in tax jurisprudence, that only the net income (i.e., net of the expenditure), from whatever source, is to be brought to tax and, consequently, only the net income, where tax-exempt, is to be so. Further, rule 8D prescribes a method/s toward determining the said income, i.e., on net basis, providing a uniform basis for ascertaining the amount of expenditure liable to be excluded in computing the income chargeable to tax. The legal basis for the relevant adjustment, i.e., qua the expenditure relatable to the exempt income, in determining the book profit, which is an alternate method of taxation, i.e., where the income computed under the regular provisions of the Act falls below the prescribed percentage of book profit, is per clause (f) of Explanation 1 below sub-section (2) of section 115JB. Thus no basis for not confirming the adjustment of the expenditure, as finally sustained for disallowance u/s. 14A(1), in computing the book profit u/s.115JB. - Decided against assessee.
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