9911796707
TMI Blog2018 (4) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest expenditure as per the provisions of Section 14A r.w. Rule 8D, the applicability of this rule has been conclusively established. Undisputedly, the appellant has not maintained separate set of accounts for investments and earning of exempted income. During the course of appellate proceedings, the ld.AR has raised mainly two contentions that the investments made in certain companies being a strategic investment amounting to Rs. 1,08,24,270/- should be excluded from the average value of investments while computing the disallowance and such investments were made out of own funds. On perusal of the details furnished, 1 find that there is no direct nexus between the investments and non-interest bearing funds and hence this argument of the appellant is not acceptable. Further, under the provisions of Section 14A r.w. Rule 8D, there is no exception provided for exclusion of the strategic investments. In fact, all the investments made by the appellant company are resulting into dividend income which is exempted from the income tax and hence in my considered view all the investments resulting into exempted income to be considered for disallowance as per Rule 8D. It may also be noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r arguments, he nonetheless relies upon the stand of the authorities below. 5. The plea of the learned counsel is indeed well taken, particularly as it is beyond any doubt or controversy that the interest free funds available to the assessee were far in excess of the investments yielding tax exempt income. We find that firstly, in view of the fact that the assessee has interest free funds far in excess of the investments yielding tax exempt income, a presumption is necessarily to be taken that the investments were made out of interest free funds. That position is supported by Hon'ble Bombay High Court's decision in the case of CIT Vs Reliance Utilities & Power Ltd [ (2009) 313 ITR 340 (Bom)], and a series of the orders passed by various coordinate benches of this Tribunal have applied the same in the present context as well. As a corollary to this presumption, no part of interest payment can be said to be attributable to the investments yielding tax exempt income. In such a position, so far as interest disallowance under rule 8D is concerned, no part of interest expenses can be disallowed under section 8 D at all. This proposition finds support from a decision of coordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of acquiring shares from which tax free dividend earned is Rs. 10,000. Out of the balance Rs. 90,000, the assessee has paid interest of Rs. 80,000 for factory building construction which clearly relates to the taxable income. The interest expenditure which is "not directly attributable to any particular receipt or income" is thus only Rs. 10,000. However, in terms of the formula in rule 8D(2)(ii), allocation of interest which is not directly attributable to any particular income or receipt will be for Rs. 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 8D(2)(ii) will be Rs. 18,000 whereas entire common interest expenditure will only be Rs. 10,000. 13. The incongruity arises because, as the wordings of rule 8D(2)(ii) exist, out of total int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular income or receipt (for example-any aspect of the assessee's business such as plant/machinery etc.) The justification that has been offered in support of the rationale for r. 8D cannot be regarded as being capricious, perverse or arbitrary. Applying the tests formulated by the Supreme Court it is not possible for this Court to hold that there is writ on the statute or on the subordinate legislation 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 expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
