JCIT vs. Pilani Investment & Industries Corpn. Ltd (ITAT Kolkata)
February, 26th 2013
S. 14A & Rule 8D: Expense specifically relatable to taxable income cannot be disallowed
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.