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TMI Blog2018 (9) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A) as regards to the disallowance pertaining to investment in PGL shall be reversed in the light of the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT (2018 (3) TMI 805 - SUPREME COURT OF INDIA). Disallowance to exempt income earned by the assessee to the extent of dividend income earned from mutual fund - Held that:- We find that this issue is squarely covered in favour of the assessee by the decision of Cheminvest Ltd. vs. CIT (2011 (11) TMI 267 - DELHI HIGH COURT) the expression "does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is arising out of the order of Commissioner of Income Tax (Appeals)-13, Mumbai [in short CIT(A)], in appeal No. CIT(A)-13/DCIT-7(3)(1)/82/2015-16 dated 17-01-2017. The assessment was framed by the Dy. Commissioner of Income Tax, Circle-7(3)(1) Mumbai (in short DCIT / AO ) for the A.Y. 2012-13 vide order dated 26-03-2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). 2. The only issue in the appeal of Revenue is against the order of CIT(A) restricting the disallowance of expenses relatable to exempt income under section 14A of Act read with Rule 8D of the Income Tax Rules (hereinafter the Rules ), 1962 to the extent of dividend income earned from Mutual Funds amounting to ₹ 31,43,480/- as against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of assessment proceedings, the AO on perusal of the profit and loss account and computation of income noticed that the assessee company has claimed dividend income as exempt amounting to ₹ 1,02,18,363/-. The AO required the assessee to explain as to why the expense relatable to exempt income be not disallowed in view of the provisions of section 14A of the Act read with Rule 8D of the Rules. The assessee before AO contended that no expenses are incurred for the purpose of earning of exempt income other than the disallowance computed by the assessee suo moto at ₹ 55,35,601/-. The AO has not accepted the disallowance made suo moto and by invoking the provisions of Rule 8D of the Rules i.e. Rule 8D(2)(ii) of Rules disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of dividend income earned from Mutual Funds only. Aggrieved, now Revenue is in appeal before us. 5. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee company has claimed exempt income in the nature of the dividend at ₹ 1,02,18,363/-. Admittedly, the assessee has made investment in Piramal Glass Limited (PGL) and incurred proportionate interest expenses to the tune of ₹ 55,35,601/-. We find from the facts of the case that the AO has disallowed the expenses relatable to exempt income under rule 8D(2)(ii) and under rule 8D(2)(iii) as under:- Sr. No. Particulars Page No. reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Maxopp Investment Ltd. vs. CIT (2018) 402 ITR 640 (SC). Accordingly, we allow the ground raised by the Revenue i.e. ground No. 2 in term of the investment made by the assessee in PGL to the extent of ₹ 5.16 crores. Accordingly, the interest expenses incurred by the assessee are to be disallowed. AO will recompute the disallowance accordingly. 7. The next disallowance pertaining to investment in Mutual Funds i.e. relating to ground No. 1 and ground No. 3 of the Revenue s appeal. The CIT(A) has restricted the disallowance to the extent of the exempt income earned by the assessee to the extent of dividend income earned from mutual fund amounting to ₹ 31,43,480/-. We find that this issue is squarely covered in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that the AO has computed the disallowance as is clear from the above chart, which clearly shows that this is double disallowance of interest for the reason that once the entire interest expense is disallowed in respect of investment in PGL, the AO cannot disallowed the part of the same interest in respect of dividend earned on mutual funds. It is settled law that for the purpose of disallowance of interest expense under Rule 8D(2)(ii) of the Rules, the interest expenses is to be taken as net interest and not gross interest. This issue has been considered by the Hon ble Gujarat High Court in the case of PCIT vs. Nirma Credit Capital Pvt. Ltd. (2017) 85 Taxmann.com 72 (Guj.) and Hon ble Bombay High Court in the case of CIT vs. Jubli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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