TMI Blog2013 (4) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... ed interest amount ₹ 39,34,995/- in profit and loss account, he considered the entire interest paid, under rule 8D (a). He arrived at average value of investments and proportionately disallowed the above interest at ₹ 3121267/-. Thereafter, 0.5% of average investments was considered and the disallowance was arrived at ₹ 20,62,214/-, thus the total disallowance u/s 14A was arrived at ₹ 51,83,481/-. 4. The Assessee before the CIT(A) submitted that AO has mechanically applied the provisions of section 14A without going through the accounts of the Assessee Company, Assessee submitted that the disallowance of expenditure should have some basis or nexus with the exempt income. If the expenditure is not at all related to the earned exempt income under provisions of section 14A cannot be invoked. 5. With reference to the facts of the case, assessee submitted that the interest paid amounting to ₹ 39,34,995/- pertain to interest paid on a loan taken from Ms. Sabita R Narang, and this loan was taken during this financial year. The entire proceeds of the said loan was advanced to M/s Nautilus Trading Leasing Pvt. Ltd. as inter-corporate deposit. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee the entire expenditure debited to the Profit and Loss Account is as under:- Account Head Amounts Rs. Remarks Employee Cost 1,85,446 Paid to Office Secretary and assistant to look after day to day affairs of the office work. Auditor s Remuneration 35,000 Statutory payment. Appeal Fees 292 Statutory payment. Bank Charges 1,961 Debited by Bank on account of specific services. Conveyance 43,409 Paid to office secretary and assistant to look after day to day affairs of the office work. Car Insurance 4,426 To insure the care used in the business. Demat Fees 8,060 Fixed charge incurred for holding the investments in non physical mode. Electricity Expenses. 6,183 Part of office expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 14A does not enable the Assessing Officer to invoke Rule 8D without determining, in the first instance the correctness of the claim of the Assessee, having regard to the accounts of the Assessee. Subsection 2 of section 14A mandates that it is only when having regard to the accounts of the Appellant, if AO is not satisfied with the correctness of the claim then only he can proceed to make determination under Rule 8D. The satisfaction envisaged by subsection 2 of section 14A is to be objective satisfaction that has to be arrived at by the AO. This is a safeguard introduced by subsection 2 for fair and reasonable exercise of power by the AO. This view was also supported by the judgment of the Hon ble Bombay Court in the case of Godrej and Boyce Manufacturing Ltd. Vs. DCIT 234 CTR 1(Bom) therefore, without proper satisfaction on the part of the AO, Rule 8D cannot be invoked. 11. As seen from the assessment order, there is no discussion about Assessing Officer having arrived at the satisfaction. The detailed explanation by the Assessee on various facts were not considered by the AO. Having examined the facts as stated above, we are of the opinion that Rule 8D cannot be invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Printing Stationery 7,009 General office running expenses. Repairs Maintenance Building. 37,430 General officer running expenses. Society Charges. 3,09,085 General office running expenses. Sundry Charges. 15,527 General office running expenses. Telephone Expenses. 65,180 General office running expenses. Transportation Expenses General office running expenses. Travelling Conveyance Expenses 13,40,451 General office running expenses. Sunder Balance Written off 7,48,141 General office running expenses. Loss on fixed assets being lost 32,389 Interest on loan. 84,65,740 Incurred for earning taxable income by way of interest. Loss on sale of mutual fund. 2,78,11,443 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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