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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 ..... remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income, thus no disallowance required - Decided in favour of assessee - ITA Nos. 2102, 2103/Mds/2015 - - - Dated:- 8-1-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant : Shri P. Radhakrishnan, JCIT For The Respondent : Mrs. S. Vidya, CA ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER These appeals by the Revenue are directed against the common order of the Commissioner of Income-tax(Appeals) dated 18.5.2015 for the assessment years 2011-12 2012-13. 2. The first common ground in these appeals is with regard to disallowance u/s.14A r.w. Rule 8D of the I.T.Rules. 3. The facts of the case are that the assessee has invested a sum of ₹ 7,26,93,072/- and Rs. . 8,98,00,072/- in shares/mutual funds for the assessment years ending on 31.3.2011 and 31.3.2012 respectively. The Assessing Officer by invoking the provisions of sec.14A r. Rule 8D of the IT Rules, worked out the disallowance at ₹ 63,78,704/- and ₹ 42,69,311/- for the assessment years 2011-12 and 2012- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.14A r.w. Rule 8D of the I.T.Rules, in our opinion, similar issue was considered by this Tribunal in the case of ACIT v. M/s. Best Crompton Engineering Ltd. in ITA No.1603/Mds/2012 dated 16.7.2013, wherein it was observed that interest on borrowings used for the business purpose cannot be considered for the purpose of computing disallowance u/s.14A r.w. Rule 8D(2)(ii) of the IT Rules and the relevant portion is reproduced as below: 10. Heard both sides. Perused the orders of lower authorities and the decision of Calcutta Bench of this Tribunal relied on by the assessee s counsel. This issue has been considered elaborately by the Commissioner of Income Tax(Appeals) and deleted the interest on bank loan and term loans which were not utilized for making any investments having tax free income. While holding so, the Commissioner of Income Tax (Appeals) held as under:- 5.2.1 Having held that provisions of rule 0D are applicable, let us now examine whether the amount has been correctly quantified. The AO had calculated the disallowance at Rs. Nil, ₹ 1,04,38,000/- and ₹ 26,87,000/- under (i), (ii) (iii) of rule 80 (2)respectively. There is no dispute regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Commissioner of Income Tax (Appeals) excluded the interest on bank loan and term loans from the calculation of disallowance under Rule 8D(2)(ii) as the assessee has utilized the bank loan and term loan for the purpose of purchase of machineries and for expansion of projects and these loans were specifically sanctioned for specific project and such loans were also used for the purpose for which they were sanctioned. In the circumstances, we find that the Commissioner of Income Tax (Appeals) has rightly excluded such interest from the purview of computation of disallowance under Rule 8D(2)(ii). 12. The decision of Calcutta Bench of this Tribunal in the case of Champion Commercial Co.Ltd. (supra) also supports the view of the Commissioner of Income Tax (Appeals). The Tribunal had considered a situation when the loans were utilized for the purchase of machineries, interest arising out of such loans, whether such interest is to be excluded for the purpose of computing disallowance under Rule 8D(2)(ii), the Tribunal held that such interest has to be excluded. While holding so, it has held as under:- 11. There is no dispute about working of this method so far as rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not directly attributable to any particular income or receipt will be for ₹ 90,000 because, as per formula the value of A (i.e. such interest expenses to be allocated between tax exempt and taxable income) will be A = amount of expenditure by way of interest other than the amount of interest included in clause (i) [ i.e. direct interest expenses for tax exempt income] incurred during the previous year . Let us say the assets relating to taxable income and tax exempt income are in the ratio of 4:1. In such a case, the interest disallowable under rule 8 D(2)(ii) will be ₹ 18,000 whereas entire common interest expenditure will only be ₹ 10,000/-. 13. The incongruity arises because, as the wordings of rule 8D(2)(ii) exist, out of total interest expenses, interest expenses directly relatable to tax exempt income are excluded, interest expenses directly relatable to taxable income, even if any, are not excluded. 14. The question then arises 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). 15. We find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertainly no 'madness in the method'. 16. Once the revenue authorities have taken a particular stand about the applicability of formula set out in rule 8 D(2)(ii), and based on such a stand constitutional validity is upheld by Hon ble High Court, it cannot be open to revenue authorities to take any other stand on the issue with regard to the actual implementation of the formula in the case of any assessee. Viewed thus, the correct application of the formula set out in rule 8D(2)(ii) is that, as has been noted by Hon ble Bombay High Court in the case of Godrej and Boyce (supra), 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.) . Accordingly, even by revenue s own admission, 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). 17. To the above extent, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice that in assessee s sister concern in the case of M/s. Farida Classic Shoes P. Ltd. v. DCIT in ITA No.1792/Mds/2015 dated 20.11.2015, the Tribunal vide its order dated 20.11.2015 observed as follows: 5. We have heard both the parties and carefully perused the materials available on record. From the facts of the case, it is apparent that both the Ld. Assessing Officer and the Ld. CIT (A) has not doubted the genuineness of the expenditure. They have made the addition and sustained the same, only for the reason that vouchers for each of the expenditure incurred were not furnished before them, though evidences were produced for purchase of foreign exchange. Considering the facts and circumstance of the case, the nature of the business of the assessee and the income generated by the assessee, we are of the considered view that the expenses incurred by the assessee to the tune of ₹ 5,02,047/- towards overseas travels is quiet reasonable. Moreover it is evident that the assessee had purchased the foreign currency and no portion of the same is surrendered. From the meager amount of ₹ 15,02,047/- incurred towards foreign travel expenditure it cannot be presumed that any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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