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TMI Blog2015 (8) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, the same cannot be applied in the case of assessee when the disallowance made u/s 14A on account of administrative expenses exceed the total expenditure debited on this account to the profit and loss account. Hence, Rule 8D cannot be applied for making disallowance u/s 14A on account of administrative expenses. The ld. AR submitted that the disallowance on account of interest expenditure is strategic one and the investment in question strategic in nature and not made with the intention of earning exempt income because the investment have been made in the sister concern and for commercial expediency. The authorities below have not examined this issue by considering fact that the investment in question are in the sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. The assessee suomotu disallowed a sum of ₹ 69.64 lakhs in computation of income. The AO made disallowance u/s 14A of ₹ 1,13,04,344/- computed as per the formula given under Rule 8D of the Income Tax Rules, 1962. Thus, the AO has made an addition of ₹ 50,58,468/- on account of disallowance u/s 14A of the Act. 3. On appeal, before the ld.CIT(A), the assessee contended that the assessee has debited a total expenditure of ₹ 86.33 lakhs to the profit and loss account and out of which the assessee suomotu has disallowed a sum of ₹ 69.64 lakhs under section 14A in computation of income, therefore, no further disallowance is called for u/s 14A of the Act. The assessee itself has worked out the amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) dated 11.3.2015. On the other hand, the ld.DR has strongly relied upon the order of AO. 5. Having regard to the facts that the disallowance made by the AO by applying Rule 8D exceeds the amount of total expenditure debited by the assessee to the profit and loss account, we are of the view that for the purpose of disallowance u/s 14A, the computation made under Rule 8D cannot be accepted. In an identical situation, the Tribunal in the case of Cape Trading P Ltd (supra) has considered the issue of disallowance made u/s 14A and applicability of the provisions of Rule 8D in para 6 of the order as under : 6. We have considered the rival submissions as well as relevant material on record. The assessee has debited administrative and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofessional fees, profession tax, business support fees cannot be said to have any direct or proximate nexus with the activity of investment or earning the exempt income. Thus the disallowance u/s 14A can be made only to the extent of allocation of these expenses which has direct or proximate nexus with earning of exempt income. From the details of the expenses, we find that the printing and stationary expenses and bank charges commission are only two items which could have direct or proximate nexus with the investment and exempt income. Therefore, the disallowance u/s 14A r.w. Rule 8D(2)(iii) cannot exceed to the allocable expenses incurred by the assessee for a composite activity resulting Cape Trading P. ltd. 5 | Page taxable and exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on account of interest expenditure is strategic one and the investment in question strategic in nature and not made with the intention of earning exempt income because the investment have been made in the sister concern and for commercial expediency. In support of this contention he has relied uypon the orders of Tribunal in the following cases : a) Gareware Wall Ropes Ltd V/s ACIT in ITA No.5408 and 4957/Mum/2012) dated 15.1.2014 for AY 2009-10 and b) M/s J M Financial Ltd V/s ACIT in ITA No.4521/Mum/2012) dated 26.3.2014 for AY 2009-10. The authorities below have not examined this issue by considering fact that the investment in question are in the sister concern and are in the nature of strategic investment. However, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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