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:-