JCIT vs. Pilani Investment & Industries Corpn. Ltd (ITAT
Kolkata)
For AY 2008-09, the AO computed the
s. 14A disallowance under Rule 8D by excluding from the total general
expenditure of Rs.1,16,94,912, an amount of Rs.19,96,228 being expenses related
to house property income, interest expenditure and demat charges. The balance
expenses were allocated as relating to tax exempt income in the ratio of tax
exempt receipts to total receipts. On this basis, 46.68% of the balance
expenditure was disallowed u/s 14A read with Rule 8D. In appeal before the CIT
(A), the assessee claimed that an amount of Rs. 57,14,450 was incurred
exclusively on building maintenance and service expenses and as no part of
these expenses could be attributed to tax exempt income, it had to be taken out
of computation of 14A disallowance. This was upheld by the CIT (A). On appeal
by the department to the Tribunal, HELD dismissing the appeal:
Once it is found that an expense is
specifically relatable to a taxable income, no portion of such an expense can
be disallowed u/s 14A. The allocation of general expenses vis-à-vis tax exempt
income and taxable income can only be made in respect of expenditure which
cannot either be wholly allocated to taxable income, then or which can not be
wholly allocated to tax exempt income; the allocation can be made, even on the
basis of formula set out in Rule 6D (iii) (should be Rule 8D (2)(iii)),
in respect of such expenses which do not fall within any of these categories.
Also
Read: (2012) 6 TaxCorp (A.T.) 28759 (KOLKATA) , where
it was held that interest incurred on taxable income has also to be excluded
under Rule 8D(2)(ii) by modifying the prescribed formula.
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