Section 8D(2)(ii) of the Income Tax Act
The decision most relied on for Section 8D(2)(ii) is Principal Commissioner of Income-tax-2 v. Caraf Builders & Constructions (P.) Ltd. (112 Taxmann.com 322), cited in 71 of the 36 judgments on BharatTax that turn on this section.
Leading authorities on Section 8D(2)(ii)
Disallowance under Section 14A of the Income-tax Act, 1961 cannot exceed the actual amount of exempt income earned by the assessee during the relevant previous year. This principle applies to assessment years prior to the amendment by Finance Bill 2022.
Section 35(2AB), an incentive provision, allows weighted deduction for expenditure 'on in-house research or development facility' even if related activities like clinical trials are conducted externally, provided they are for the in-house research. This requires a liberal interpretation of the provision.
Expenditure incurred for exploring the feasibility of expanding or extending an existing business by setting up a new unit in the same line of business is revenue expenditure, not capital expenditure. Such expenditure, including obtaining project reports or legal opinions on desirability or feasibility, does not constitute the setting up of a new business.
Comparables with brand value and high turnover should be excluded if functionally different from the assessee's business. The exclusion of specific comparables like e-Clerx, ICRA Techno Analytics, TCS E-Serve, and Accentia Technologies is sustainable when they are functionally different and lack segmental information.
Professional charges incurred for conducting due diligence for the acquisition of another company are allowable as a revenue expenditure.
Expenditure incurred for replacement of parts of a machinery, where the machinery as a whole continues to be functional, is treated as current repairs and not capital expenditure.
No disallowance of interest is warranted on interest-free advances to associated concerns when the assessee possesses substantial interest-free funds, such as shareholders' funds.
Expenditure incurred on the production of TV serials and programmes can be treated as revenue expenditure. The distinction between 'news content' with no repeat telecast value and TV serials/programmes with repeat telecast value is relevant in determining the nature of expenditure.
