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TMI Blog2016 (8) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... to ½% of the average value of investment, income from which does not or shall not form part of the total income, as appear in the balance sheet of assessee on the first day and the last day of the previous year has to be attributed. Working has to be made on the investment as specified, without segregating them on income yielding or non-income yielding during the year. The investment in Bill Roth Hospitals Ltd., has potential to earn dividend in a later year. Thus AO is correct in disallowing 0.5% of the average investments as available in the balance sheet. To that extent, assessee’s contentions are rejected. - Decided partly in favour of assessee - I.T.A. No. 74/HYD/2016 - - - Dated:- 27-7-2016 - Shri B. Ramakotaiah, Accountant Member And Shri Laliet Kumar, Judicial Member For the Assessee : Shri K.C. Devdas, AR For the Revenue : Shri K.J. Rao, DR ORDER Per B. Ramakotaiah, A. M. This is an appeal by assessee against the order of Commissioner of Income Tax (Appeals)-5, Hyderabad, dated 16-11-2015 on the issue of disallowance u/s. 14A of the Income Tax Act [Act]. 2. Briefly stated, assessee is in health care business. In addition to earning its regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment. With reference to the disallowance under Rule 8D(2)(iii) of administrative expenditure, it was submitted that AO should be directed to disallow only on the investments which earned income relying on the decision of the Hon'ble High Court of Delhi in the case of ACB India Ltd., (Formerly M/s. Aryan Coal Benefications (P) Ltd., in ITA No. 615/2014 dt. 24-03-2015. 4. Ld. DR however, relied on the detailed order of the CIT(A). 5. We have examined the rival contentions and perused the contentions. There is no dispute with reference to invoking of Rule 14A which, assessee has not contested before us, consequently, the issue is only whether disallowance can be made under Rule 8D? There is no direct expenditure which can be disallowed under Rule 8D(2)(i). As far as the expenditure incurred by way of interest, Rule 8D(ii) can be invoked only in a case where there is an interest during the previous year which is not directly attributable to any particular income or receipt. In that event, proportionate amount is to be disallowed as provided in the Rule. However, as seen from the balance sheet, there are secured loans from the banks. It was submitted that no part of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t day of the previous year has to be attributed. Working has to be made on the investment as specified, without segregating them on income yielding or non-income yielding during the year. The investment in Bill Roth Hospitals Ltd., has potential to earn dividend in a later year. This issue was discussed elaborately by the Co-ordinate Bench in the case of Bellwether Microfinance Fund Pvt. Ltd., in ITA No. 1743/Hyd/2013 dt. 27-06-2014. The relevant portion of the said order is as under: 7. We have heard parties and perused materials on record as well as the orders of the authorities on this issue. So far as the contention of the learned AR that provisions of section 14A is not attracted and it has not incurred any expenditure towards earning of exempt income and further contention that dividend income cannot be considered as exempt income as it is subjected to dividend distribution Tax u/s 115J and 115-O of the Act, in our view, it is not acceptable simply because of the fact that the assessee itself recognizing the fact that it has incurred expenditure towards earning of exempt income has disallowed expenditure to the tune of ₹ 35,65,860/- u/s 14A read with Rule 8D(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of expenditure directly relating to income which does not form part of the total income. Second part under sub-rule 8D(2)((ii) deals with disallowance to be computed on the basis of formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The third part as provided under Sub-Rule 8D(2)(iii) is an artificial figure i.e. one-half per cent of the average 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. Aggregate of these three components would constitute expenditure in relation to exempt income and would be disallowed u/s 14A of the Act. Therefore, if we examine the facts of the present case in the context of the aforesaid statutory provision, it is quite clear that AO while working out disallowance under rule 8D(2)(i) has taken the total investment irrespective of the fact whether they have yielded income or not during the assessment year under consideration. The reasoning of the AO in this regard is actual earning or receipt of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him shall not again be so included on the basis that it is received or deemed to be received by him in India. 7.2 As can be seen, definition of total income u/s 2(45) refers to section 5 which envisages scope of total income . On a reading of section 5 of the IT Act, it would be evident that as per this section total income is of any previous year and which includes income from whatever source derived which is received or deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arises to him in India during such year or accrues or arise to him outside India during such year. Considered in aforesaid context, expression total income referred to in rule 8D(2)(i) cannot be in abstract. It must relate to a previous year income of which is sought to be assessed. Therefore, as a natural corollary it follows that only expenditure directly relating to income which is earned either on receipt basis or on accrual basis and which does not form part of total income of a particular assessment year can be disallowed under clause (i) of Rule 8D(2). Rule 8D(2)(i) does not refer to the investment made by the assessee. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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