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TMI Blog2020 (12) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Rules on account of other common expenses by taking into consideration only those investments on which exempt income was actually earned by the assessee during the year under consideration. Ground no. 1 and 2 of the assessee's appeal are thus partly allowed. Disallowance of interest - business expediency of the investment made by the assessee in the debentures of M/s. Kunal Spaces Pvt. Ltd. was not established - HELD THAT:- As sufficient own funds in the form of share capital and free reserves to the tune of ₹ 30.73 crores were available with the assessee-company at the relevant time and the same being sufficient to make the entire investments including the investment made by the assessee-company in the debentures of M/s. Kunal Spaces Pvt. Ltd., we are of the view that no disallowance on account of interest as made by the Assessing Officer and sustained by the ld. CIT(A) was called for as there was no case of utilization or diversion of the interest bearing loan borrowed by the assessee-company for non-business purpose. In that view of the matter, we delete the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) on account of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involve a common issue relating to the disallowance made by the Assessing Officer u/s. 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 which is sustained by the ld. CIT(A) to the extent of ₹ 16,64,256/-. 3. The assessee in the present case is a company which is engaged in the business of Promoters and Builders. The return of income for the year under consideration was filed by it on 29.09.2011 declaring a total income at Nil. In the said return, dividend income of ₹ 25,413/- and share of profit from the partnership firm of ₹ 1,41,67,160/- earned during the year under consideration was claimed to be exempt by the assessee. No disallowance on account of expenses incurred in relation to the earning of such exempt income however was offered by the assessee as required by the provisions of section 14A of the Income Tax Act, 1961. In this regard, it was explained by the assessee that the share of profit from the partnership firm although was exempt in the hands of the assessee-company as a partner, the same had suffered tax in the hands of the partnership firm. It was also submitted by the assessee that no expenses in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany out of its own free funds and there being no utilization of interest bearing borrowed funds for making the said investment, we find merit in the contention of the ld. Counsel for the assessee that disallowance on account of interest made by the Assessing Officer u/s. 14A and sustained by the ld. CIT(A) is liable to be deleted. 5. As regards the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) on account of other common expenses by applying Rule 8D(2)(iii), ld. Counsel for the assessee has raised a limited contention that the same should be worked out by taking into consideration only those investments which had actually fetched exempt income during the year under consideration and not the entire investments as considered by the Assessing Officer. Since this contention raised by the ld. Counsel for the assessee is duly supported inter alia by the decision of the Mumbai Bench of this Tribunal in the case of Fineotex Chemical Ltd. vs. ACIT (ITA No. 5412/Mum/2016 dated 27.02.2018), we direct the Assessing Officer to re-compute the disallowance to be made u/s. 14A of the Act by applying Rule 8D(2)(iii) of the Rules on account of other common expenses b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t bearing loan borrowed by the assessee-company for non-business purpose. In that view of the matter, we delete the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) on account of interest and allow ground no. 2 of the assessee's appeal. 9. The issue involved in ground no. 4 relates to the disallowance of ₹ 3 lakhs made by the Assessing Officer and confirmed by the ld. CIT(A) on account of director's remuneration. 10. During the course of assessment proceedings, it was noticed by the Assessing Officer that there was increase of director's remuneration by ₹ 3 lakhs during the year under consideration as compared to the immediately preceding assessment year. In this regard, it was explained by the assessee that its working directors were professionals having experience in their field and remuneration of ₹ 18 lakhs was paid to them during the year under consideration for rendering services as per the prevailing market rate and situation. The Assessing Officer did not accept this explanation of the assessee-company. He noted that there was decline in the overall expenditure incurred by the assessee during the year under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged by the assessee was to be considered, the total rent should have been ₹ 1,50,000/- per month or ₹ 18 lakhs per annum. He, therefore, treated the balance interest of ₹ 9 lakhs as excessive or unproved and made disallowance to that extent. On appeal, the ld. CIT(A) sustained the said disallowance to the extent of ₹ 7,14,202/- for the following reasons given in paragraphs no. 9.5.2 to 9.7 of his impugned order:- 9.5.2 In the building Kunal House balance area of (7500 minus 2363= 5137 sqft.) is occupied by the appellant. The India Bulls is paying rent at 39 per sqft. Therefore, the market rent payable is considered as ₹ 39 per sqft. Therefore, the appellant should have paid ₹ 2,00,343/- X 12=24,04,116/- (5137X39X12) whereas the appellant has paid ₹ 27 lacs to 7 persons. Therefore, the appellant has paid excessive amount of ₹ 2,95,884/-. These persons are undoubtedly persons covered u/s. 40A(2)(b). This calculation shows that appellant has paid excessive rent to persons covered u/s. 40A(2)(b) over and above the market rent. Under these circumstances, invocation of section 40A(2) by AO is correct. 9.6 The appellant relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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