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TMI Blog2012 (6) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... owable amount as per Rule 8D(2) cannot be sustained - in CIT Vs. Hero Cycles Ltd. [2009 (11) TMI 33 (HC)]held that disallowance u/s 14A requires a finding of incurring of expenditure where it is found that for earning exempt income, no expenditure has been incurred, disallowance u/s 14A cannot be sustained – in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee did not incur any expenditure to earn income exempt from tax. Reliance was placed on the following decisions: (a) CIT Vs Walfort and Stock Brokers Pvt. Ltd. (b) Navin Chemical Manufacturing and Trading Co. Ltd. Vs. Collector of Customs (1993) (4 SCC 320) (c) CIT Vs. Hero Cycles Ltd. (2010) (323 ITR 518) 6. The ld. CIT(A) after considering the submissions of the assessee held as under: "7.3 The appellant company has objected to the disallowance of expenditure by invoking the provisions of section 14A on two grounds namely (i) The appellant did not earn any income during the subject A.Y., which was exempted from tax; and (ii) The appellant did not incur any expenditure to earn an income exempt income. As regards first reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the value of the investment, income from which does not form part of the total income , as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. The disallowance, as envisaged above, is aggregate of all the three. Therefore, there may not be any disallowance under (i) and (ii) above but still on facts of a case there can be disallowance under (iii) above. Now applying the facts of the case of the appellant to the above said three disallowances as per provisions of Rule 8D referred above, one can clearly rule out that disallowance is not called for as per (i) & (ii) above as there is no direct interest expenditure for making investments during the year and the interest paid by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuous monitoring, review and course correction is required to be done in case of large investment portfolio. In. the background of the facts of the case of the appellant narrated above, the decisions relied on by the appellant have been examined. It is found that in the case of the appellant investment activity yielding exempted income constitute a substantial part of its business and in view of the investment being funded out of non-interest bearing funds the only issue requiring adjudication is what is the purpose for incurring business expenditure. Obviously, to pursue the major objective and investment activity constitute the substantial activity. Therefore the application of third limb of Rule 8D is direct in the case of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest at Rs. 27,447/-, the same has already been directed to be deleted. In result this ground of appeal is partly allowed." 7. Thus the ld. CIT(A) deleted the disallowance of Rs. 27,447/- made on account of interest expenditure but sustained the disallowance of expenditure @ 0.5% of the average value of investment. Being aggrieved against this sustenance of disallowance of expenditure, the assessee is in appeal before us. 8. The ld. A.R. reiterated his submissions as made before the ld. CIT(A) and the ld. D.R., on the other hand, supported the findings of the ld. CIT(A). 9. We have heard the rival submissions and perused the orders of the lower authorities and material on record. In the instant case, the Assessing Officer observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not necessary that exempt income must have accrued to the assessee during the relevant previous year. In view of the above binding decision of the Special Bench of the Tribunal, we do not find merit in the arguments of the assessee that as there is no exempt income earned by the assessee during the year under consideration, therefore, disallowance of expenditure by invoking provisions of Rule 14A cannot be made. 13. However, we find that in the instant case, the Assessing Officer has not brought no material on record to show that the claim of the assessee that no actual expenditure was incurred in making investments in question was not correct. The Assessing Officer, without disputing the correctness of the claim of the assessee has i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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