Jt Cit (Osd) 6(2)(1), Mumbai vs Dharti Investments And Holdings … on 12 June, 2018

4. During the course of scrutiny assessment, AO disallowed

Rs.25,94,088/- u/s. 94(7). AO also disallowed interest expenditure by

invoking provisions of Section 14A r.w. Rule 8D. Expenditure incurred on

civil work was also partly disallowed by the AO treating the same as

capital in nature.

5. By the impugned order, CIT(A) partly allowed the expenditure

incurred on civil work by treating the same as revenue in nature.

However, CIT(A) confirmed the disallowance made u/s.14A and also

disallowance made u/s.94(7) of the IT Act.

6. Against the order of CIT(A) both assessee and Revenue are in

further appeal before us.

7. Learned AR appearing on behalf of the assessee invited out

attention to the interest expenditure incurred by the assessee as well as

the interest income earned by the assessee and it was contended that

disallowance u/s. 14A with regard to the interest expenditure should be

computed with reference to the net interest expenditure incurred by the

assessee. Meaning thereby interest income so earned should be reduced
ITA No.3272/Mum/2016 & 2078/Mum/2016
M/s. Dharti Investment & Holdings Ltd.,

from the interest expenditure and the net interest expenditure should be

considered for computing the disallowance. Reliance was placed on the

decision of Gujarat High Court in case of Nirma Credit & Capital (P) Ltd.,

85 Taxmann.com 72, wherein it was held that for the purpose of applying

the factors contained in Clause (ii) of Sub-rule (2) of the Rule 8D prior to

its amendment with effect from 02/06/2016, amount would be considered

as amount of expenditure by way of interest would be the interest paid by

the assessee on the borrowings minus taxable interest earned during the

financial year. Reliance was also placed on the decision of Jurisdictional

High Court in case of Jubilant Enterprises Pvt. Ltd., order dated

28/02/2017. Precise observation of Hon’ble High Court was as under:-

Source: IK