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TMI Blog2018 (4) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... the investment in shares for earning interest. Therefore, expenditure relatable to investment in shares and securities is required to be disallowed U/s. 14A of the Act. r. w. Rule 8D of the Income Tax Rules 1962. As such, vide point No. 4 of notice u/s.142(1) dated 07/01/2015, the assessee was requested to furnish working of disallowance u/s.14A of the Act and also show cause as to why disallowance u/s.14A of the Act should not be worked out invoking Rule 8D of I. T. Rules, 1962. The assessee vide letter dated 29/01/2015 submitted as under: 1. Disallowance u/s.14A (Sr. No.1) and Point no 5 of Questionnaire dated 20.09.2013] 1.1 Vide Point No.1, your good selves have asked to explain as to why the expenditure incurred for earning this exempt income should not be disallowed u/s 14A r.w. Rule 8D in view of the fact that the assessee has earned exempt income of Rs. 42,510/-. In this regards, the assessee company submits as under: 1.2 The break-up of investments held as on the last date of year under consideration for your immediate perusal is as under:- Particulars As on 31.03. 2011 As on 31.03.2010 Trade Investments Shares of Amot Decalite ltd &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated from such trading activity is duly offered as taxable business income and so all expenses which is attributable to earning of such taxable business income should be allowable as business expense. 1.6 The assessee company further submits the breakup of the expenses in the table presented hereunder wherein the expenses have been bifurcated into those which are directly and specifically related to the trading of clothes and garments and into those which are general business expense which are to be incurred for routine activities of any organization along with the remarks in regards to the treatment of these expenses in the Computation of taxable business income- Particulars Amount (Debited to P/L) 31-03- 11 General Routine Business Expenses Remarks Employees Emoluments 43,77,566 Directly related to trading of Clothes and Garments & the retail stores. Audit Fees - Asman 71,695 71,695 General Business Expenses Advertisement Expense 48,120 Directly related to trading of Clothes and Garments & the retail stores. Bank Charges - Asman 94,539 94,539 General Business Expenses Bank Commission 2,19,039 Directly rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e retail stores. Service & Maintenance Exp 29,700 29,700 General Business Expenses Signboard Exp 1,386 Directly related to trading of Clothes and Garments & the retail stores. Stamp and Notary Charges 3,930 Directly related to trading of Clothes and Garments & the retail stores. Telephone Expense-Asman 23,646 23,646 General Business Expenses Travelling Expense-Asman 26,340 Directly related to trading of Clothes and Garments Vehicle Expense - Fuel car 7,407 Expenses in relation to vehicles used for carrying the business activity of trading of clothes and garments specifically. Vehicle Expesne - Fuel (Scooter) 26,630 Vehicle Expense -Repairs 11,135 Vehicle Expense -Repairs Car 7,605 Xerox Charges 45,131 45,131 General Business Expenses Sales Rated Exoesiss Labour Exps 5,75,713 General Business Expenses and directly related to trading of clothes and garments Transport Exps 65,276 Transport of goods (Clothes & Garments) Packing Exps 5,87,578 Packing of Clothes And Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to Rs. 10,531/- have been disallowed while computing the business income as the same relates to the expense in relation to shares pledged against loan borrowed. As explained above, the expenses of Rs. 87,33,018/- are having direct correlation with the business of trading of clothes and garments of the assessee company. Thus, out of total expenses debited jo profit accounts, the general administrative expenses claimed are only to the tune of Rs. 15.08.192/- which are necessary for any organization to carry on its business operations. The disallowance, as stated above being 0.5% of average investments, if made will exceed the total amount of general administrative expenses claimed; however, the disallowance u/s.14A r.w.r 8D cannot exceed the total amount of general administrative expenditure." The submission made by the assessee has been carefully considered but the same is not found to be correct. Section 14A of the Act only provides that if the expenditure is incurred by the assessee in relation to income which does not form part of the total income. There is no denying the fact that the assessee has made investment in shares and securities income from which is exempt from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Avg. Investment 662152710 0.5 100 3310764 3310764 AGGREATE OF (i) + (ii) + (iii) 369963 1 Accordingly, an amount of Rs. 36,99,631/- is disallowed and added to the total income 4. Thereafter, assessee preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal of the assessee. 5. Now revenue's appeal is before us. 6. We have gone through the relevant record and impugned order. On being called upon the explain as to why disallowance should not be made under section 14A read with rule 8D, the Appellant addressed its letter dated 29th January, 2015 elaborately explaining as to why, in the peculiar facts and circumstances of its case, there was no warrant or justification for making any disallowance under section 14A. Same was submitted to the lower authorities. 7. Assessee contended since it had not earned any tax free income this year, there is no question for making any disallowance under section 14A. The assessee was holding long term investments of Rs. 32.64 crores as at the beginning of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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