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The Tax Publishers Udhavdas Mohandas Rupchandani v. Asstt. CIT [ITA Nos. 1010, 1011 & 1012/Mum/2014, dt. 30-3-2016] : 2016 TaxPub(DT) 2171 (Mum-Trib) Disallowance under section 14A on interest on borrowing which is invested in firms *Facts:* Assessee had borrowed money and invested in firms where in he had earned interest, salary and share of profits exempted under section 10(2A). Disallowance was done under section 14A citing that the assessee has used borrowed funds to earn tax-free share of profits. On appeal Commissioner (Appeals) reduced the disallowance under section 14A read with rule 8D (ii) but sustained the addition of ad hoc calculation of 0.5% it was sustained by the Commissioner (Appeals). On appeal: Held partly in favour of the assessee. Disallowance under section 14A read with rule 8D(ii) need not be done as the borrowed money had earned salary and interest taxable as business income also it could not be proved that expenditure was spent exclusively to earn tax free income. The bifurcation of the interest paid into taxable/exempt income is difficult hence thus. However disallowance under rule 8D(iii) 0.5% will stand sustained at a reduced ad hoc basis thus held the ITAT.

The Tax Publishers

Udhavdas Mohandas Rupchandani v. Asstt. CIT [ITA Nos. 1010, 1011 & 1012/Mum/2014, dt. 30-3-2016] : 2016 TaxPub(DT) 2171 (Mum-Trib)

Disallowance under section 14A on interest on borrowing which is invested in firms

Facts:

Assessee had borrowed money and invested in firms where in he had earned interest, salary and share of profits exempted under section 10(2A). Disallowance was done under section 14A citing that the assessee has used borrowed funds to earn tax-free share of profits. On appeal Commissioner (Appeals) reduced the disallowance under section 14A read with rule 8D (ii) but sustained the addition of ad hoc calculation of 0.5% it was sustained by the Commissioner (Appeals). On appeal:

Held partly in favour of the assessee. Disallowance under section 14A read with rule 8D(ii) need not be done as the borrowed money had earned salary and interest taxable as business income also it could not be proved that expenditure was spent exclusively to earn tax free income. The bifurcation of the interest paid into taxable/exempt income is difficult hence thus. However disallowance under rule 8D(iii) 0.5% will stand sustained at a reduced ad hoc basis thus held the ITAT.