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TMI Blog2017 (6) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee cannot be considered reasonable, she did not have much to say. We agree with the learned counsel that the disallowance so offered cannot be considered to be unreasonable by any standard nor has that been alleged before us either. Thus we disapprove the additional disallowance by invoking rule 8D, particularly 8D(2)(iii) as well, and delete the impugned additional disallowance so restored to by the Assessing Officer. - Decided in favour of assessee. Disallowance u/s 14A while computing book profit under section 115JB - Held that:- The above issue is now covered, in favour of the assessee, by Hon’ble jurisdictional High Court’s judgment in the case of CIT Vs Alembic Ltd [2017 (1) TMI 513 - GUJARAT HIGH COURT] Set off of speculation loss - CIT-A allowed claim - Held that:- CIT(A) has not erred allowing the set off of speculation loss on the basis of a decision of this Tribunal in the case of Virendra Kumar Jain Vs ACIT [2010 (5) TMI 870 - ITAT MUMBAI] wherein held in sub-section (4) of section 73 or in any other provision, there is no express language or any implication to the effect that the right of the assessee to carry forward the speculation loss for a period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record and duly considered facts of the case in the light of the applicable legal position. 6. We have noted that so far as interest disallowance under section 14A is concerned, it is not in dispute that the assessee had sufficient interest free funds available to the assessee, and, as such, no part of interest payment can be attributed to the investments yielding tax exempt investments. It is by now a settled legal position that in such a situation, i.e interest free funds available to the assessee being in excess of the investments of in investments yielding tax exempt income, presumption has to be that such investments are out of the interest free funds. For this short reason, no disallowance can be made, in respect of interest payment, under section 14A on the facts of this case. In any case, as is undisputed position, there is a net interest credit in this case. As held by a coordinate bench of the case of Morgan Stanley Securities India Pvt Ltd Vs ACIT [(2011) 55 DTR 177 (Mum)], disallowance under section 14 A is to be made on the basis of net interest. Therefore, interest being a credit figure in this case, no part of interest can be disallowed in this case. For this reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of 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; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of 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." (3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. 11. There is no dispute about working of this method so far as rule 8D(2)(i) and (iii) is concerned. It is only with regard to the computation under rule 8D(2)(ii) that the Assessing Officer and the CIT(A) have differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 8D(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 8D(2)(ii). 15. We find that notwithstanding the rigid words of Rule 8D(2)(ii), the stand taken by the revenue authorities about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation perversity, caprice or irrationality. There is certainly no 'madness in the method'. 16. Once the revenue authorities have taken a particular stand about the applicability of formula set out in rule 8D(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 & Boyce Mfg. Co. Ltd. (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 exampleany 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 expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also bearing in mind entirety of the case, we disapprove the additional disallowance by invoking rule 8D, particularly 8D(2)(iii) as well, and delete the impugned additional disallowance so restored to by the Assessing Officer. The assessee succeeds on this point. 8. Ground no. 1 is thus allowed. 9. In ground no. 2, the assessee has raised the following grievance: On the facts and in the circumstances of the appellant's case, the learned CIT(A) erred in confirming the addition of ₹ 88,21,450, being disallowance under section 14A, while computing book profit under section 115JB of the Income Tax Act. 10. Learned representatives fairly agree that the above issue is now covered, in favour of the assessee, by Hon'ble jurisdictional High Court's judgment in the case of CIT Vs Alembic Ltd [judgment dated 20.7.2016 in Tax Appeal No. 1249 of 2014]. In this view of the matter, we uphold the plea of the assessee, and direct the Assessing Officer to grant resultant relief. 11. Ground no. 2 is also thus allowed. 12. In the result, the appeal filed by the assessee is allowed. 13. In the appeal filed by the Assessing Officer, grievance is as follows: The learned CIT(A) has err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he coordinate bench, or is before us, nor that is the only view expressed by Hon'ble Supreme Court on that issue in view of a subsequent decision, by a bench of equal strength in the case of CIT Vs Shah Sadiq & Sons [(1987) 166 ITR 102 (SC)]. It cannot, therefore, be said that not following the Reliance Jute decision was a clear mistake and, for that reason, coordinate bench decision is required to be treated as per incurium. We find that the coordinate bench, speaking through the then Sr Vice President (later Justice) Shri R V Easwar, had observed as follows: 5. On a careful consideration of the rival contentions, we are of the view that the assessee is entitled to succeed. It is a well settled rule of interpretation that any vested right can be taken away only by express language or by necessary implication. This is settled by the decision of the Privy Council in Delhi Cloth & General Mills Company Ltd. Vs. Income Tax Commissioner, AIR 1927 (PC) 242 and the same has been cited with approval by the Supreme Court in the case of Jose Dacosta Vs. Bascora Sadashiv Sinai Narcomin, AIR (1975) SC 1843. In CIT, UP Vs. Shah Sadiq & Sons, (1987) 166 ITR 102, the Supreme Court was concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Supreme Court observed as under:- "The fact that the right created by the operation of section 24(2) is a vested right cannot, in our opinion, be disputed. See in this connection the observations of this court in Gujarat Electricity Board Vs. Shantilal R.Desai (1969) 1 SCR 580, 587 and Isha Valimohamad Vs. Haji Gulam Mohamad & Haji Dada Trust (1975) 1 SCR 720, 723. Under the Income-tax Act of 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against profits made from that business in future years. The right of carrying forward and set off accrued to the assessee under the Act of 1922. A right which had accrued and had become vested continued to be capable of being enforced notwithstanding the repeal of the statute under which that right accrued unless the repealing statute took away such right expressly. This is the effect of section 6 of the General Clauses Act, 1897." Again at page 110 of the report, the impact of section 6(c) of the General Clauses Act, 1897 was considered and it was observed as under:- "In this case, the "savings" provision in the repealing statute is not exhaustive of the rights which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. There is a distinction between a loss brought forward from the earlier years and a loss to be carried forward to the subsequent years. The sub-section deals only with the speculation loss to be carried forward to the subsequent years and in the very nature of things it cannot apply to speculation loss quantified in any assessment year before the assessment year 2006-07. The Income Tax Rules which prescribe the return form for individuals having proprietary business (ITR 4) also makes a distinction between the loss brought forward and loss to be carried forward. Reference may be made to page 1.369 of the Income Tax Rules by Taxman (2009 - 46th Edition). In Schedule BFLA, the assessee is required to give "details of income after set off of brought forward losses of earlier years". Schedule CFL requires the assessee to give "details of losses to be carried forward to future years". Herein we are concerned with the assessee's right to set off the brought forward speculation losses against the speculation profits for the assessment year 2006-07. Sub-section (4) of section 73 does not deal with this situation. Hence, it has no application. 7. The learned Senior D.R. referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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