Interest expenses directly attributable to tax exempt income as also directly attributable to taxable income, are required to be excluded from computation of common interest expenses to be allocated under rule 8D(2)(ii).
From the facts of the present case, it is clear that there is no link with expenditure for earning of dividend income incurred by the assessee and once the facts are clear, no disallowance can be made by invoking rule 8D of the Rules. Neither the AO nor CIT(A) has recorded any finding that having regard to the account of the assessee, they are not satisfied with the correctness of the claim of expenditure made by assessee or the claim made by assessee that no expenditure has been incurred in relation to income which do not form part of the total income under the Act for the relevant assessment year. In the absence of any such finding, facts of the present case shows that the investment in shares was made out of own capital employed and not from borrowed funds, no disallowance on account of interest expenditure can be made by invoking rule 8D of the Rules.
There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, ‘on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139’.
Where a foreign company gives a technical know-how and obtains equity shares in the new company, the amount attributable to technical know-how was not revenue expenditure under section 37 of the Act. However, it was treated to be of capital nature.
Where the assessee has maintained the Attendance Register of labourers shown the ledger account of labour charges and office expenses, which were all duly produced before the AO and also placed before us which contained the details of wages paid to and accepted by the labourers, no defect in the same has been pointed by the revenue. The action to make the ad hoc disallowance @5% qua the same and 10% in the case of office expenses on the reasoning that to curb the possibility of revenue leakage and seems excessive respectively is arbitrary which cannot be supported in law.
The Revenue’s case is that the provision of sec. 50C having come on the statute book with effect from 1-4-2003, and the capital asset which is the subject-matter of transfer, being land, the same would apply, and thus stands rightly invoked by the AO. The assessee’s case, and on the basis of which it found favour with the first appellate authority, is that the transfer in the first five (5) cases stood effected much prior the relevant year, i.e., on 15-01-1998
The High Court has failed to appreciate that while charging interest from the assessees, the Department first adjusts the amount paid towards interest so that the principal amount of tax payable remain outstanding and they are entitled to charge interest till the entire outstanding is paid. But when it comes to granting of interest on refund of taxes, the refunds are first adjusted towards the taxes and then the balance towards interest. Hence, as per the stand that the Department takes they are liable to pay interest only up to the date of refund of tax while they take the benefit of assessees funds by delaying the payment of interest on refunds without incurring any further liability to pay interest,. This stand taken by the respondents is discriminatory in natrure and thereby causing great prejudice to the lakhs and lakhs of assessees.
It was the submission by the ld. AR that the show cause notice issued u/s 263 of the IT Act on 23.01.2012 had not mentioned which order was erroneous nor had he mentioned the error in the assessment order. It was the submission that the show cause notice did not show as to how and what was the issue in which order the said issue arose which was erroneous and prejudicial to the interest of the revenue.
As is the settled legal position, in the light of Hon’ble Supreme Court’s decision in the case of ACIT vs. Saurashtra Kutch Exchange Ltd. (305 ITR 227) , a judicial decision acts retrospectively. As Their Lordships observed in this case, judges do not make the law, they only discover or find the correct law and, therefore, a rectification of mistake in an order can also be carried out in the light of Hon’ble Supreme Court’s judgment passed after the subject order is passed. The action of the CIT (Appeals) was thus correct and does not call for any interference.
It is a fact that assessee has not booked the lease rentals as noted by the AO but on the reason that the assessee being NBFC is following the guidelines issued by RBI and guidelines states that once the party has become a defaulter for at least twelve months that party can be declared as NPA and no income on that part can be booked from the source after failure to get any income.
