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TMI Blog2014 (11) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter disallowed Rs. 5,60,565/-. On appeal, the CIT(A) confirmed the same. Against this, the assessee is in appeal before us. 4. The Ld. AR submitted that the assessee is having enough own funds in the form of share capital, reserves in surplus. More so, in the assessment year under consideration, the assessee earned profit of Rs. 2,53,25,000/- and incremental investment is only Rs. 1,36,00,000/- and it cannot be presumed that investment in the mutual funds is out of borrowed funds. He drew our attention to the balance sheet and assets and liabilities as on 31-03-2008 to explain the above position. He also drew our attention to the profit and loss account as on 31-03-2008. According to the Ld. AR, even otherwise computation of the disallowance u/s. 14A is not correct. The Assessing officer considered the gross current assets instead of net current assets while applying the formula under Rule 8D of I.T. Rules. The Ld. AR also submitted that the disallowance is as per assessee's calculation. 5. The Ld. AR further submitted that the CIT(A) erred in disallowing a sum of Rs. 5,60,565/- u/s. 14A of the Act. The CIT(A) erred in confirming the disallowance u/s. 14A without proper app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............ (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :- A x B ----------- C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises whether we can tinker with the formula prescribed under rule 8D(2)(ii) of the Income Tax Rules, or construe it any other manner other than what is supported by plain words of the rule 8 D (2)(ii). 12 In our opinion, it is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt. Therefore, it is not only the interest directly attributable to tax exempt income, i.e. under rule 8D(2)(i), but also interest directly relatable to taxable income, which is to be excluded from the definition of variable 'A' in formula as per rule 8D(2)(ii), and rightly so, because it is only then that common interest expenses, which are to be allocated as indirectly relatable to taxable income and tax exempt income, can be computed. 13. In our opinion, interest expenses directly attributable to tax exempt income as also directly attributable to taxable income, are required to be excluded from computation of common interest expenses to be allocated under rule 8D(2)(ii). 14. In our o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, but the fact remains that the delivery of the commodity was not taken at each step and it was only done on final settlement of account. To this extent the transaction entered into by the assessee is "speculative transaction". The CIT(A) observed that here it is also important to invoke Explanation to section 73 as the assessee has claimed loss on this transaction. According to the CIT(A) Section 73 categorically provides that where any part of the business of the company includes purchase and sale of shares of other company, it shall be deemed to be carrying on speculation business to the extent to which the business consists of that activity. Further, the CIT(A) observed that Explanation to section 73 deems that companies which are into business of purchase and sale of shares, even if delivery based are treated to be carrying on speculative business. Thus, the CIT(A) confirmed the finding of the Assessing officer that the transaction should be treated as speculative transaction and the loss cannot be adjusted against any other kind of income. Against this, the assessee is in appeal before us. 19. The Ld. AR submitted that the Assessing officer disallowed the above loss on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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