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TMI Blog2018 (12) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... is accordingly allowed. ITA 1260/2018 This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (in short 'the Act') in the case of M/s. Caraf Builders & Construction Pvt. Ltd. ('respondent-assessee' for short) relates to the Assessment Year 2009-10 (in short 'AY') and arises from order of the Income Tax Appellate Tribunal (in short, 'the tribunal') dated 27.02.2018. 2. The only issue raised by the Revenue in this appeal relates to the quantum of disallowance under Section 14A of the Act. Hence, we need not refer to any other issue and aspect. 3. The respondent-assessee in the return for the year had declared income of Rs. 6,30,950/- taxable under the head short-term capital gains earned from investment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dividend income was claimed as exempt income under Section 10 (34) of the Act. 10. The respondent-assessee had disallowed expenses of Rs. 70,20,602/- under Section 14A of the Act as attributable to earning of the exempt income. 11. The Assessing Officer held that though the investment of Rs. 820 crores in equity shares had not yielded dividend income, this investment must be taken into consideration while computing disallowance under Section 14A of the Act for the provision prohibits allowance of any expenditure incurred in relation to exempt income which was not included in the total income by virtue of Section 10 of the Act. Dividend income earned on shares being exempt, disallowance has to be made on income in relation to earning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self disallowance of Rs. 70,20,602/- made by the respondent-assessee was enhanced and increased by Rs. 143,82,48,096/- to Rs. 144,52,68,698/-. 18. Lastly, the Assessing Officer on the question of taxability of interest income of Rs. 41,61,57,245/- observed that Rs. 144,52,68,698/- had been disallowed under Section 14A leaving a balance sum of interest paid of Rs. 8,55,97,765/-, which remained to be appropriated. Interest of Rs. 8,55,97,765/- was set off against interest income of Rs. 41,81,11,353/- and the taxable income, other than short term capital gains, was enhanced to Rs. 33,31,99,690/- 19. The Commissioner of Income Tax (Appeals) reduced the disallowance to Rs. 75,89,66,443.93 by accepting alternative computation made by the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total administrative expenditure other than interest was Rs. 5,15,147/- only, as Rs. 25,34,548/- was paid towards fee and taxes for increase in the share capital of the respondent-assessee. Rs. 25,34,548/- was excluded for purpose of disallowance under clause (iii) of Rule 8D and the entire amount of Rs. 5,15,147/- was disallowed. 22. Thus, the Commissioner of Income Tax (Appeals) had reduced the total disallowance made under Rule 8D to Rs. 75,89,66,443/-. 23. By the impugned order, the Tribunal has upheld the computation of disallowance made by the Commissioner of Income Tax (Appeals). 24. The question of netting i.e. reduction of interest received from interest paid for the purpose of computation of disallowance under Rule 8D sub-r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matically, it is that expenditure alone which has been incurred in relation to the income which is includable in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income." XXX 10. The decision of the Delhi High Court in Holcim India Pvt. Ltd (Supra) had referred to the issue whether disallowance of expenditure under Section 14A of the Act would be made even w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order". 15. Income exempt under Section 10 in a particular assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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