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2018 (10) TMI 352 - AT - Income TaxDisallowance u/s.14A - Held that - It was brought to our notice that the Hon ble ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(ii) & (iii). Also in the case of ACIT v. Vireet Investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI held that only those investments which yielded dividend income are to be considered for computing average value of investments for the purpose of Rule 8D(2) of the Rules. - Decided against revenue Allowable revenue expenditure - stamp duty payable on issue of Bonds as a part of the expenditure incurred for mobilization of funds through issue on bonds - Held that - The facts with regard to expenses on issue of bonds are identical in the present AY also. Following the order of the Tribunal for AY 2010-11, we uphold the order of the CIT(A) in allowing the claim - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 14A read with Rule 8D for disallowance of expenses related to tax-exempt income. 2. Classification of stamp duty expenses on the issuance of bonds as capital or revenue expenditure. Detailed Analysis of the Judgment: Issue 1: Applicability of Section 14A read with Rule 8D for Disallowance of Expenses Related to Tax-Exempt Income Facts and Arguments: The Revenue challenged the CIT(A)'s decision that Section 14A read with Rule 8D was not applicable in this case. The Assessee, a state corporation, had not included investments in three Public Sector Enterprises and debt funds while computing the average value of investments for disallowance under Rule 8D. Legal Provisions: As per Rule 8D(2), the disallowance involves: - Direct expenses related to tax-exempt income. - Interest expenses not directly attributable to particular income. - 0.5% of the average value of investments yielding tax-exempt income. Tribunal's Findings: The Tribunal referenced the Kolkata ITAT decision in REI Agro Ltd. and the Special Bench decision in ACIT v. Vireet Investments Pvt. Ltd., affirming that only investments yielding dividend income during the relevant year should be considered for computing the average value of investments under Rule 8D(2)(ii) & (iii). The Tribunal found no merit in the Revenue's grounds and upheld the CIT(A)'s decision. Issue 2: Classification of Stamp Duty Expenses on Issuance of Bonds as Capital or Revenue Expenditure Facts and Arguments: The AO disallowed ?61,00,000 claimed as stamp duty expenses, classifying them as capital expenditure. The Assessee argued that ?50,00,000 of these expenses, related to bond issuance, should be treated as revenue expenditure. Legal Provisions and Case Law: The AO relied on Supreme Court decisions in PSIDC v. CIT and Brook Bond India Ltd. v. CIT, which classified similar expenses as capital expenditure. The CIT(A) and Tribunal, however, distinguished bonds from equity shares, treating bonds as debt instruments. They cited the Supreme Court's decision in India Cements v. CIT, which allowed similar expenses as revenue expenditure. Tribunal's Findings: The Tribunal upheld the CIT(A)'s decision, allowing ?50,00,000 as revenue expenditure, consistent with its earlier decision in the Assessee's case for AY 2010-11. The Tribunal emphasized that expenses for raising loans through bonds do not enhance the capital base and are, therefore, revenue in nature. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on both issues. The disallowance under Section 14A read with Rule 8D was limited to investments yielding tax-exempt income, and the stamp duty expenses on bond issuance were classified as revenue expenditure.
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