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TMI Blog2013 (8) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion, Assessing Officer cannot force the assessee to earn interest income or save interest expenses for running the business. The Assessing Officer was unable to demonstrate that interest bearing loans were used by the assessee other than business purpose - Decided against Revenue. Disallowance u/s 14A - CIT deleted addition - Held that:- section 14A, even prior to the introduction of sub-sections (2) & (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the provisions of Rule 8D(b) and Rs.6,73,909/- being 0.5% of the average investment by applying the provisions of Rule 8D(c). Thus, total disallowances u/s 14A read with Rule 8D was Rs.36,66,405/-. The CIT (A) deleted both these additions by observing a under :- "8. In respect of Ground NO.1 2, it is seen that the assessing officer has not recorded a specific finding that expenditure was incurred for the earning of the dividend income such as on interest, portfolio management services, and overheads and office expenses. He has held that if the appellant had not made investment in mutual fund units and not given interest free loan to its sister concerns, the need for borrowing from the bank 'and paying interest thereon would not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the appellant had itself disallowed this amount in the computation of income. After carefully considering the orders passed by the ITAT, Delhi and the CIT(As) in a number of preceding assessment years, the following disallowances are deleted: (a) Rs.18,71,506/- out of interest paid on loans from banks. (b) Rs.36,66,405/- under Section 14A read with Rule 80." Now, the revenue is in appeal by taking the following grounds :- "1. Whether on the facts and on the circumstances of the case the ld. CIT(A) was justified in deleting the addition of Rs.18,71,506/- made on account of interest expenditure paid to bankers for availing credit facilities. 2. Whether On the facts and on the circumstances of the case the ld. CIT(A) was justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee should have used its own fund instead of interest bearing borrowings for running the business. In our opinion, Assessing Officer cannot force the assessee to earn interest income or save interest expenses for running the business. The Assessing Officer was unable to demonstrate that interest bearing loans were used by the assessee other than business purpose. Learned First Appellate Authority has appreciated the facts and circumstances in right perspective and we do not see any reason to interfere in his order. Hence, this appeal of the revenue is dismissed." Keeping these facts in view, we dismiss this ground of revenue's appeal. 5. In the ground no.2, the issue involved is deleting the addition of Rs.36,66,405/- made u/s 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. 42. Thus, the fact that we have held that sub-sections (2) (3) of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment." Based on the facts and circumstances of the case and on the basis of earlier decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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