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TMI Blog2016 (2) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, the Commissioner of Income-tax(Appeals) though confirmed the invoking of provisions of sec.14A r.w. Rule 8D, he observed that interest paid to various parties is relating to packing credit, letters of credit and term loans, which are directly attributable to the assessee's business of manufacturing and export of shoes and it does not relate to any amount invested in the shares/mutual funds. According to him, only indirect interest expenses to be considered for disallowance u/s.14A r.w. Rule 8D of the I.T.Rules. Accordingly, the Commissioner of Incometax( Appeals) confirmed the disallowance of Rs. 8,93,146 and Rs. 10,43,008/- for the assessment years 2011-12 and 2012-13 respectively. Against this, the Revenue is in appeal before us. 4. We have heard both the parties and perused the material on record. The ld. DR submitted that there is no documentary evidence available to show that the loans availed by the assessee were for the business purposes and the Commissioner of Income-tax(Appeals) has given a relief to the assessee after considering the details of the loans borrowed by the assessee though these documents were not before the AO for his examination. On the other hand, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the second component being the expenditure by way of interest which is not directly attributable to any particular income or receipt, the AO has determined the amount at Rs. 1,04,38,000/. The AO has taken into account the entire interest expenditure of Rs. .5,79,46,000/- for computing the above disallowance. The Id.AR, in his submission, has given the break-Up of interest which includes (1) interest on bank loans: Rs. 67,92,000/- (2) interest on term loans Rs. 3,82,11,000/- and (3) interest on other accounts: Rs. 1,29,43,000/-. If loans have been sanctioned for specific projects/expansion and have been utilized towards the same, then obviously they could not have been utilized for making any investments having tax-free incomes. From the copy of the sanction letters from State Bank of Bikaner & Jaipur it can be seen that the loan was granted with a specific requirement that the loan shall be utilized for purchase of imported machinery while in the case of loan from Federal Bank, it is seen that the loan was to be utilized for expansion of projects. Sanction of both these loans prohibit utilization of funds for purposes other than for the utilization for which they are sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D(2)(ii) that the Assessing Officer and the CIT(A) have different approaches. This provision admittedly deals with a situation in which " the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt" . Clearly, therefore, this sub clause seeks to allocate 'common interest expenses' to taxable income and tax exempt income. In other words, going by the plain wordings of rule 8D(2)(ii) what is sought to be allocated is "expenditure by way of interest...........which is not directly attributable to any particular income or receipt" and the only categories of income and receipt, so far as scheme of rule 8 D is concerned, are mutually exclusive categories of 'tax exempt income and receipt' and 'taxable income and receipt'. No other classification is germane to the context in which rule 8 D is set out, nor does the scheme of Section 14 A leave any ambiguity about it. 12. Ironically, however, the definition of variable 'A' embedded in formula under rule 8D(2)(ii) is clearly incongruous inasmuch while it specifically excludes interest expenditure directly related to tax exempt income, it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT (328 ITR 81) when constitutional validity of rule 8 D was in challenge, is that " 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 (for example-any aspect of the assessee's business such as plant/machinery etc.)". Therefore, it is not only the interest directly attributable to tax exempt income, i.e. under rule 6D(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 6D(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. This is clear from the following observations made by Their Lordships of Hon'ble Bombay High Court in the case of Godrej & Boyce (supra): 60. In the affidavit-in-reply that has been filed on behalf of the Revenue an explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having taken that stand when constitutional validity of rule 8 D was in challenge before Hon'ble High Court, cannot now decline the same. Ideally, it is for the Central Board of Direct Taxes to make the position clear one way or the other either by initiating suitable amendment to rule 8D(2)(ii) or by adopting an interpretation as per plain words of the said rule, but even on the face of things as they are at present , in our humble understanding, revenue authorities cannot take one stand when demonstrating lack of 'perversity, caprice or irrationality' in rule 8D before Hon'ble High Court, and take another stand when it comes to actual implementation of the rule in real life situations. Therefore, even as we are alive to the fact that the stand of the learned Departmental Representative is in accordance with the strict wording of rule 8D(2)(ii), we have to hold that, for the reasons set out above, this rigid stand cannot be applied in practice." 13. In view of the decision of the Calcutta Bench of this Tribunal cited above, we uphold the order of the Commissioner of Income Tax (Appeals) in excluding the interest on bank loan and term loans for the purpose of computing disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards disallowance of foreign travel expenses." 9. Considering the facts and circumstances of the case, we are inclined to hold that on surmises and presumption, adhoc disallowance is not possible. However, we make it clear that there cannot be double claim of same expenditure, one in the hands of the assessee and another in the hands of the sister concern for the same assessment year, viz. 2012-13. Accordingly, this ground of appeal of the Revenue is also dismissed. 10. The next ground in ITA No.2103/Mds/15 is with regard to disallowance u/s.43B of the Act, in respect of contribution to the employees towards PF & ESI. 11. The AO disallowed a sum of Rs. 2,29,048/-, by invoking the provisions of sec.43B of the Act in respect of employees contribution towards PF & ESI as it was not paid within due date under the respective Act. The Commissioner of Incometax( Appeals) observed that the employees contribution was remitted within due date of filing of return u/s.139(1) of the Act and allowed the claim of the assessee. Against this, the Revenue is in appeal before us. 12. We have heard both the parties and perused the material on record. This issue was considered by the Jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X
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