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2022 (6) TMI 1148 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Disallowance under Rule 8D(2)(ii) i.e. with respect to the interest disallowance which has been worked out on the basis of gross interest expenses - HELD THAT - We find that Hon'ble Gujarat High Court in the case of Nirma Credit and Capital Pvt. Ltd. ( 2017 (9) TMI 485 - GUJARAT HIGH COURT ) has held that for the purpose of working out disallowance under Rule 8D(2)(ii) of the Act, the expenditure by way of interest paid by assessee would be after reducing the taxable income earned during the financial year. Before us, Revenue has not placed any contrary binding decision in this case. We therefore in view of the aforesaid decision of Hon'ble Gujarat High Court direct the AO to working out the disallowance under Section 14A r.w. Rule 8D of the Income Tax Rules on the basis of the net interest under Rule 8D(2)(ii) of the Act. We thus direct accordingly. Thus the ground of assessee is partly allowed.
Issues Involved:
- Disallowance under Section 14A read with Rule 8D based on interest expenditure incurred by the assessee. Analysis: Issue 1: Disallowance under Section 14A read with Rule 8D based on interest expenditure incurred by the assessee. The case involved an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2014-15. The assessee, a company engaged in dealing with shares/securities, had electronically filed its return of income, which was later scrutinized, and an assessment was framed under section 143(3) of the Income Tax Act. The total income was determined at Rs. 72,21,667, leading to the dispute. The primary issue revolved around the disallowance under Section 14A read with Rule 8D concerning interest expenditure incurred by the assessee. The Assessing Officer (AO) had invoked Rule 8D to work out the disallowance under Section 14A, resulting in a disallowance of Rs. 44,35,384. The Commissioner of Income Tax (Appeals) restricted this disallowance to Rs. 32,55,500 based on the exempt income earned by the assessee. During the appeal before the Tribunal, the assessee's representative contended that the disallowance under Rule 8D(2)(ii) should be based on net interest expenditure, as the assessee had earned interest income and incurred interest expenditure during the year. The representative relied on the decision of the Hon'ble Gujarat High Court in a similar case to support this argument. After considering the submissions, the Tribunal directed the Assessing Officer to calculate the disallowance under Section 14A read with Rule 8D based on the net interest expenditure, as per Rule 8D(2)(ii). The Tribunal's decision was influenced by the precedent set by the Hon'ble Gujarat High Court, emphasizing the need to deduct taxable income earned while calculating the disallowance. Consequently, the Tribunal partly allowed the appeal of the assessee, emphasizing the importance of considering net interest expenditure for determining the disallowance under Section 14A read with Rule 8D. The order was pronounced on 16th June 2022, granting relief to the assessee in this regard. In conclusion, the judgment addressed the specific issue of interest expenditure disallowance under Section 14A read with Rule 8D, emphasizing the significance of calculating such disallowance based on net interest expenditure, as highlighted in relevant legal precedents.
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