Eurozone factory PMI expands for first time in two years.

Eurozone manufacturing PMI climbed to a two-year high of 50.3 in July from 48.8 in June, entering expansion territory for the first time since July 2011. PMIs rose in all nations except Spain, helped by rising export demand and stabilizing domestic markets. The reading will hopefully "help the euro area exit recession."

Strong PMIs boost equities.

Asian and European shares (FEZ) have mostly risen today following strong manufacturing PMI data out of China - the official print at least - and Europe. U.S. stock futures were also solidly in the green at the time of writing.

S. 14A/ Rule 8D: Interest expenditure has to be netted against interest income and only the difference, if any, can be considered for disallowance

ITO vs. Karnavati Petrochmem Pvt. Ltd (ITAT Ahmedabad)

In AY 2008-09, the assessee invested Rs. 95 lakhs in shares on which it earned Rs. 300 as dividend. The AO applied Rule 8D and made a disallowance of Rs. 15 lakhs. The assessee claimed that no expenditure had been incurred to earn the dividend income on the basis that while the interest expense was Rs. 1.83 crore, the interest income was Rs. 1.86 crore and there was a net surplus interest income of Rs. 3.79 lakh. The CIT(A) held that the AO had not established a nexus between the expenditure incurred and the tax free income and that as the assessee had net positive interest income, there could be no disallowance of the interest expenditure u/s 14A read with Rule 8D. He sustained the disallowance at 0.5% of the average investment. On appeal by the department HELD dismissing the appeal:

 

No nexus has been established by the AO between the expenditure incurred by the assessee and the tax free income earned by him. Further, as the interest income was more than interest expense and the assessee was having net positive interest income, the interest expenditure cannot be considered for disallowance u/s 14A and Rule 8D (Trade Apartment (ITAT Kol) & Morgan Stanley (ITAT Mum) (both included in the file) followed)

Obama rehashes corporate tax proposals.

President Barack Obama yesterday revived a plan to cut corporate taxes to 28% from 35%. Obama also wants to overhaul the tax code, which would generate one-time funds that would be used to finance infrastructure, education and promoting manufacturing. To limit tax evasion and the use of havens, Obama proposed a minimum tax on foreign earnings. With Republican unimpressed, Obama's plans are unlikely to make too much headway in the House.

German retail sales unexpectedly drop.

German retail sales fell 1.5% on month in June vs a rise of 0.7% in May and consensus for an increase of 0.2%, with the unexpected decline weighing on market sentiment. Meanwhile, the unemployment rate held steady at 6.8% in July as the number of people out of work dropped by 7,000 to around 2.93M. Q2 "is dominated by catch-up effects after a weak start into the year," says economist Christian Lips, but adds that the economy will expand this year.

Eurozone unemployment drops for first time in two years.

The number of people without a job in the eurozone fell by 24,000 on month in June, the first drop in two years and another sign that the bloc may just be experiencing some green shoots of recovery. However, the decline was too small to affect the unemployment rate, which stayed at a record 12.1% for the fourth month in a row. Meanwhile, annual inflation held steady at 1.6% in July.

Economy expected to have slowed in Q2.

U.S. Q2 GDP data is due out this morning, with economists estimating that growth slowed to an annual rate of 1% from 1.8% in Q1, hurt by government austerity and weak global demand. Economists don't expect the reading to influence the FOMC as it makes its latest monetary policy decision today, because the print "tends to (be) backward looking." Changes to the way GDP is calculated, such as counting R&D as an investment, could boost the numbers