2012 (6) TMI 83 - ITAT DELHI

Dis-allowance u/s 14A of interest expenditure and administrative expenses on ground of same attributable to exempt income earned on account of dividend and long term capital gain - assessee is in the business of making investments, besides other business - earlier, it was carrying on the activity of manufacturing and dealing in Textiles - Held that:- CIT(A) have rightly deleted dis-allowance of interest expenditure on ground that no interest expenditure stands shown as relating to the period during which the assessee company was only an investment company. Entire interest expenditure actually related to the earning of taxable income from the Textile Division. Since no nexus was brought by the AO between the borrowed funds and the tax free investment. That being so, disallowance of interest on borrowed funds was entirely uncalled for.

Administrative expenses - Held that:- It cannot be gainsaid that the disallowance u/s 14A of the Act cannot be made on an ad-hoc basis and it is the Department’s responsibility to justify any such disallowance by bringing material on record to show that any expenditure was incurred for earning the exempt income. In the absence of such evidence, it was wrong on the part of the AO to proceed to compute disallowance of the expenses u/s 14A of the Act by merely applying Rule 8D(2)(iii) of the Rules.

Deduction u/s 80IA/80IB - denial of deduction u/s 80 IA/80 IB for pre-demerger period to assessee company or resulting company regarding the assessee’s three units which stood demerged pursuant to the Demerger Scheme - denial also on ground that same has not been claimed in Return - Held that:- Circular No. 15/5/63 – IT(A-I) dated 13.12.63 relates that the Board agreed that the benefit of section 84 attached to the undertaking and not to the owner thereof and that the successor would be entitled to the benefit of the unexpired period of 5 years, provided the undertaking was taken over as a running concern.

It is on record that audit report in form No. 10 CCB, has been filed, in which deductions u/s 80 IA(12)/80 IB(12) were duly certified to have been claimed by the assessee. It is undisputed that the claim was made by way of a Note appended to the original return of income. It cannot be gain-said that the Note to the return of income formed an integral part of the return. Thereby, it cannot be held that the deduction was not claimed in the return of income. Therefore, AO erred in denying the deduction u/s 80 IA(12)/80 IB(12) - Decided in favor of assessee.