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TMI Blog2012 (10) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... restore the matter to the file of A.O. for computing the disallowance u/s 14A on the interest component after verification of the necessary details after allowing a reasonable opportunity of being heard to the assessee. Also disallowance at 2% of exempt income for management / administrative expenses is in order Deduction u/s 44C towards head office expenses attributable to Indian operations - Held that:- Article 7(3) does not talk of limiting the deduction of expenses incurred for the business of the permanent establishment subject to the limitations contained in the Act. While discussing this issue for assessment year 1999-2000 in the context of section 43B, we have held that the restriction contained in specific sections cannot apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly bonus payable is an allowable deduction. 4. Disallowance of expenses in relation to exempt income, though loosely referred to as disallowance u/s 14A, is sustainable even as per the DTA. 3. Both the sides have agreed that by and large the issues involved in the present appeals are mutatis mutandis similar to the A.Y. 1999- 2000. In fact, no separate arguments were advanced in respect of the present set of appeals unless there is some change in the facts or legal position. We shall follow the above extracted view taken by us in our separate order for the A.Y. 1999-2000 without repeating the reasoning given in such order. However, we shall advert to separate arguments wherever there is some difference in the facts or legal positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree bonds should not be disallowed, the assessee tendered the same reply which was given for assessment year 1999-2000. The A.O. observed that the gross income as per Profit and loss account was at ₹ 40.36 crore whereas the total expenses were ₹ 34.19 crore. This percentage of expenses in terms of revenue at 84% was applied for making disallowance in respect of tax free income. This resulted into disallowance to the tune of ₹ 78,69,915. The learned CIT(A) bifurcated this disallowance into two parts viz. interest expenditure in relation to funds borrowed for making investment in tax free bonds and certain administrative and management expenses in relation to earning of the exempt income. He deleted the disallowance in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is further observed that the Assessing Officer has made disallowance u/s 14A towards management / administrative expenses at 2% of exempt income for assessment year 2004-2005, which year is also in appeal in the present batch of appeals. As the view taken by the learned CIT(A) accords with the view of the Assessing Officer taken in assessee s own case for a subsequent year, in our considered opinion, disallowance at 2% of exempt income for management / administrative expenses is in order. Further, the ld. AR sought not to press disallowance towards management/administrative expense, if restricted to 2%. In view of our restricting such disallowance to 2% of exempt income, the ground of the assessee stands dismissed as not pressed and that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can also not apply. Resultantly the direction given by the learned CIT(A) to modify the adjusted total income as per section 44C becomes infructuous as section 44C itself cannot apply. This ground is allowed. 13. In the result, the appeal of the assessee is partly allowed and that of the Revenue is partly allowed for statistical purposes. Assessment Year 2001-2002 14. First ground about the rate of tax is decided against the assessee. 15. Second ground about the disallowance of expenditure on purchase of fixed assets is also decided against the assessee. 16. Third ground about the disallowance of bonus expenses is allowed. 17. Fifth ground about the deduction u/s 44C is also allowed. 18. Fourth ground of the assessee s ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s 14A both in respect of interest and also management/administrative expenses. The impugned order is, therefore, set aside to this extent. 25. In the result, the assessee s appeal is partly allowed and that of the Revenue is partly allowed for statistical purposes. Assessment Year 2003-2004 26. Ground no.1 of the assessee s appeal about the rate at which tax leviable is decided against the assessee. 27. Ground no.2 about disallowance of expenditure on purchase of fixed assets is also decided against the assessee. 28. Ground no.3 about the deduction u/s 44C is allowed. 29. Ground no.5 about the disallowance of bonus expense is decided in favour of the assessee. 30. Ground no.4 of the assessee s appeal and ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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