I-T - Rule 8D(ii) will have no application if interest income earned on investments outweighs interest expenditure incurred: ITAT
By TIOL News Service
AHMEDABAD, SEPT 19, 2018: THE ISSUE IS - Whether Rule 8D(2)(ii) shall have no application in case the interest income earned by the taxpayer outweighs interest expenditure. YES IS THE ANSWER.
Facts of the case
During the course of scrutiny proceedings, the AO noticed that the assessee had earned dividend income to the tune of Rs.30,42,833/- which was exempt from tax. The AO accordingly invoked the provisions of Section 14A and computed disallowance of expenditure attributable to such exempt income by resorting to formula provided in Rule 8D. This disallowance under Rule 8D also included disallowance of interest amounting to Rs.28,38,647/- in terms of Rule 8D(2)(ii). On appeal, the CIT(A) granted relief to the assessee against the said action of proportionate disallowance of interest.
On appeal, the ITAT held that,
++ the plea on behalf of the assessee on gross outgo of interest is Rs.126.49 Crores whereas the assessee has also earned interest income simultaneously of a bigger sum of Rs.130.02 Crores. Thus, essentially, there is excess of interest earned over interest expenditure. It is the contention on behalf of the assessee that in view of these facts, it cannot be said that the assessee has claimed any expenditure on interest per se. It is thus the case of the assessee that netting of interest income and outgo is required to be done while invoking Rule 8D(2)(ii) in the light of the decision of Gujarat High Court in case of Pr.CIT vs. Nirma Credit & Capital (P.) Ltd - 2017-TIOL-1781-HC-AHM-IT, wherein it was held that interest earned by the assessee is required to be factored for the purpose of ascertaining the amount of expenditure incurred by the assessee by way of interest. Thus, there is merit in the plea of assessee that Rule 8D(2)(ii) shall have no application in the given facts where the interest income earned outweigh the interest expenditure.
(See 2018-TIOL-1592-ITAT-AHM)
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