M/S. SHEWANI PROPERTIES,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX,,

The assessee has raised the following ground of appeal:- 1. The learned CIT(A) has erred in confirming the disallowance of claim u/s 14A of the Income Tax Act 1961 of Rs.7,72,362/-.

The learned Authorized Representative for the assessee pointed out that the limited plea raised in the present appeal is against disallowance made under section 14A of the Act and be restricted to net interest paid and not to the gross interest paid. In this regard, he placed reliance on the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Jubilant Enterprises Pvt. Ltd. in Income Tax Appeal No.1512 of 2014, judgment dated 28.02.2017 and the decision of the Hon’ble High Court of Gujarat in Pr. CIT Vs. Nirma Credit and Capital Pvt. Ltd. in Tax Appeal No.409 of 2017 with Tax Appeal No.514 of 2017, judgment dated 31.08.2017.

The learned Departmental Representative for the Revenue strongly opposed the proposition made by learned Authorized Representative for the assessee.

We have heard the rival contentions and perused the record. Briefly, in the facts of the case, the assessee was partnership firm engaged in the business of promoters and builders. For the year under consideration, the assessee had computed disallowance under section 14A of the Act at ₹ 18,42,881/-. The assessee while computing disallowance under Rule 8D(2)(ii) of the Income Tax Rules, 1962 (in short ‘the Rules’) had considered total net interest paid by the assessee and had pointed out that no disallowance is warranted on this count. The Assessing Officer however, was of the view that interest debited to the Profit and Loss Account to the partners of capital account was ₹ 79,22,877/- and interest paid on finance charges was ₹ 58,13,923/-, totaling ₹ 1,37,36,800/-. The Assessing Officer denied the claim of assessee of setting off of interest received of ₹ 40,56,925/- and re-computed

The CIT(A) upheld the order of Assessing Officer, in view of provisions of Rule 8D of the Rules being inserted by the Finance Act w.e.f. 24.03.2008.

The case of assessee before us is that for computing disallowance under section 8D(2)(ii) of the Rules on account of interest expenses, net interest is to be considered in the hands of assessee and not gross interest paid.

We find that the Hon’ble Bombay High Court in CIT Vs. Jubilant Enterprises Pvt. Ltd. (supra) had settled the issue in this regard and have dismissed the appeal of Revenue against the order of Tribunal in holding that disallowance made under section 14A of the Act read with Rule 8D of the Rules is to be on the basis of netting of interest.

Similar issue has been decided by the Hon’ble High Court of Gujarat in Pr. CIT Vs. Nirma Credit and Capital Pvt. Ltd. (supra). Following the same parity of reasoning, we hold that for the purpose of applying the provisions of clause (ii) of sub-rule (2) of Rule 8D of the Rules, prior to its amendment w.e.f. 02.06.2006 what has to be considered as amount of expenditure by way of interest would be interest paid by the assessee on borrowings minus interest income received during the financial year. Such is the proposition laid down by the Hon’ble High Court of Gujarat in Pr. CIT Vs. Nirma Credit and Capital Pvt. Ltd. (supra) and applying the same, we direct the Assessing Officer to delete

In the result, the appeal of assessee is allowed.