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TMI Blog2011 (1) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... a suo moto disallowance of expenses to the tune of ₹ 173038 had been made by the assessee u/s 14A of the Act. In the assessment order, the AO made a disallowance of ₹ 3218475 by applying the method provided in Rule 8D of the I.T. Rules, 1962. This was done without pointing out any inaccuracy in the method of apportionment or allocation of expenses, as adopted by the assessee. - It was the case of the assessee that to earn such dividend income, no direct expenditure was required and no expenses were incurred to make investment of surplus amounts in mutual funds. The suo moto disallowance had, however, been made by the assessee keeping in consideration, the provisions of section 14A of the Act. - Revenue appeal dismissed. - I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad 6 manufacturing/trading units related to photo sensitized goods/ chemicals and photographic equipment etc. at various locations, along with return of income filed, the assessee submitted its P L A/c showing its manufacturing/trading activities in different products, unit-wise. The assessee's units at Dadra(PPD unit) and another unit at Samba (Jammu), were entitled for deduction 80IB of the I. T. Act. The assessee claimed such deduction @ 30% and 100% respectively. On perusal of the tax audit report, the AO observed, the assessee having excluded other income amounting to ₹ 1706572 in its turnover of its Dadra unit and other income amounting to ₹ 1467641 in the total turnover of its Samba unit. These other incomes comprised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the excess depreciation written back in the Samba unit of the assessee and the excess provision written back for both the units. 5. The CIT(A) held the miscellaneous receipts to be allowable in view of the Fenner India Ltd. vs. CIT , 241 ITR 803 (Mad.), these receipts pertained to sale of scraps. The excess provision written back and the excess depreciation written back were also held to be eligible as directly related to the activity of the eligible units. 6. Apropos interest receipts, the AO held that the interest earned had been derived from FDRs kept as margin money/bank guarantees for import of raw-material, due to which, the interest earned was to be excluded from the profits of the eligible units for calculation of ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) being a decision rendered by the jurisdictional High Court of Delhi, is, as such squarely applicable. Khemka Container Ltd. (supra) relied by the AO, against the assessee, is a decision of a non-judicial High Court qua-theassessee, and, as such, it gives way to the case of Spot King India Ltd. , which has been rendered, as noted by the jurisdictional High Court of Delhi. Accordingly, ground no.2 raised by the department is rejected. 12. Apropos ground no.3, the AO made a disallowance of ₹ 3045437 in terms of section 14A of the I.T. Act by applying the method provided in Rule 8D of the I.T. Rules, 1962. 13. By virtue of the impugned order, the CIT(A) restricted the said disallowance to ₹ 173038, observing that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been reversed by the CIT(A). 17. We have heard the parties on this issue and have perused the material on record. During the year, the assessee had earned exempt dividend income of ₹ 1797010 in respect of investment made in mutual funds. In the return of income filed, a suo moto disallowance of expenses to the tune of ₹ 173038 had been made by the assessee u/s 14A of the Act. In the assessment order, the AO made a disallowance of ₹ 3218475 by applying the method provided in Rule 8D of the I.T. Rules, 1962. This was done without pointing out any inaccuracy in the method of apportionment or allocation of expenses, as adopted by the assessee. All through, the assessee has maintained that the assessee was during the year, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure had been incurred by the assessee for earning its dividend income. Merely, an ad hoc disallowance was made. The onus was on the AO to establish any such expenditure. This onus has not been discharged. In CIT vs. Hero Cycles (P H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions. In ACIT vs. Eicher Ltd. , 101 TTJ (Del.) 369, that it was held that the burden is on the AO to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance u/s14A of the Act. In Maruti Udyog vs. DCIT, 92 ITD 119 (Del.), it has been held that before m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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