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Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited

3. In Grounds No. 1 & 2 including their sub-grounds, the assessee is challenging reopening of assessment by issuance of notice under section 148 of the Income Tax Act. In the sub-grounds, it has taken peripheral arguments for challenging this issue.

4. In Ground No. 3, the assessee is challenging determination of amounts required to be disallowed with the aid of section 14A read with Rule 8D of the Income Tax Act as well as Rules.

"W.B. Infrast ructure Development Finance Corp. Limited PAN: AAACW3432D A.Y. 2008-09 "Return of income was filed on 27.09.2008 and subsequently revised return was also filed on 18.03.10. Tot al income was assessed u/s 143(3) at Rs.20,9 2,60,199/-.
It is seen from the assessment records th at the nature of business of the assessee was non-banking financial operation. The assessee earned dividend income of Rs.41,02,847/- which was exempt u/s 10 (34). Acco rdingly, t he assessee offered expenditure of Rs.5 2,92,896/- incurred by way of interest Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited related to exempted income and the same was considered as disallowance u/s 14 A in the co mputatio n of inco me. As per assessee's submission, short t erm loan was utilized fo r earning exempt inco me but the amount of interest attribut able to exempt inco me was arbitraril y comput ed. T he assessee incurred expenditure on account of interest of Rs.208,90,88,187/- o n short term loan. Hence, interest expenses rel ated to exempt income was required to be disallowed as per pro visio ns of section 14A read wit h Rule 8 D. However, no interest expense attributable to exempt inco me was considered for disallowance u/s 14A.
Taking up through the reasons, he contended that grievance of the ld. DCIT for reopening of the assessment relates to non-disallowance of interest expenditure for earning tax-free income under section 14A of the Income Tax Act. He submitted that this reopening is being made on the basis of change of opinion only, otherwise the ld. Assessing Officer in the original round of assessment proceedings has gone through all these details and thereafter opted to work out the disallowance of Rs.48,68,050/-. This disallowance was worked out by taking ½ percent of average investment. The assessee has explained the issue in detail and also filed working and after going through the working, the ld. Assessing Officer did not deem it appropriate to work out a disallowance of interest expenditure under Sub-Rule (i) and (ii) of Rule 8D regarding interest expenditure. In order to buttress his contention, he drew our attention at pages no. 107 to 112 of the paper book, where on page no. 107, the letter of the DCIT is available exhibiting the fact that the details with regard to tax-free income, vis-a-vis expenditure relatable to those incomes as contemplated under section 14A read with Rule 8D were called upon. The Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited assessee has filed detailed reply and the copies of such reply are available on pages no. 108 to 112. These pages read as under:-
5. Copy of comput ation of fringe benefit t ax with quart ered break-up.
6. Original TDS certificates in 41 nos.
7. Bank Reconciliation Statement 31 nos.
8. The company h as earned dividend income of Rs.41,02 ,847/- during the financial year 2007-08 fro m it s investme nts in SBI Sho rt Horizon Fund LIQUID Plus (Mutual Fund). In connection with above exempt ed income, the co mpany has considered disallowance of Rs.55,92 ,896/- u/s 14A read with Rule 8D towards int erest on borrowed funds, calculat ed @8.90% p.a. being average co st of bo rrowed funds of Rs. 25 crore for 92 days. T his disallowance of Rs.55 ,92,896/- has Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited been considered while computing t axabl e income for th e captio ned assessment year.