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TMI Blog2014 (4) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ts disallowance under Rule 8D)(ii) as nil but it seems to be due to an inadvertent mistake. In fact the total addition made by Assessing Officer at Rs.46,05,172/- reconciles only if Rs.88,450/- is taken as disallowance under rule 8D(ii). 2. In the assessment year 2009-10 this disallowance u/s 14A was made for an amount of Rs.75,37,219/- comprising of the following amounts:- i) Under Rule 8D(i) Nil ii) Under Rule 8D(ii). Rs.6,86,658/- iii) Under Rule 8D(iii). Rs.68,50,561/- Total Rs.75,37,219/- 3. Aggrieved with the assessment order, the assessee filed appeal before Ld CIT(A). The Ld CIT(A) after going through the submissions filed by assessee did not agree with the arguments of Ld AR and upheld the addition of Rs.46,05,172/- inadvertently mentioned at Rs. 4,51,65,575/-. It appears from the order of Ld CIT(A) that he had confirmed the disallowance only with respect to addition under rule 8D(iii) as he did not make any finding with respect to addition under rule 8D(ii). However, we find that before Ld CIT(A) the assessee had taken up whole addition of Rs.46,05,172/-. Before us also the assessee has taken vide ground No.1 the issue of whole addition of Rs.46,05,172/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no new investment was made and the increase in value as on 31.3.2008 had occurred only due to lower provisions for diminution in value. As regards assessment year 2009-10 the Ld AR took us to page 24 of paper book for assessment year 2009-10 and submitted that investments in subsidiary companies was of same value as in the earlier year and the decrease in value had occurred due to more provision for diminution in value. Similarly in respect of other unquoted shares our attention was invited to the comparable figures with the earlier year with the proposition that investment during this period had in fact decreased by a small amount. Regarding investment in equity shares, it was submitted that it was of same value and the decrease in value was only on account of higher provisioning for diminution in value. As regards investments in units of mutual funds, the Ld AR submitted that investments during this year and considerably reduced and that too remained in debt oriented schemes of mutual funds wherein no expertise is required and in this respect our attention was invited to paper book page 38 wherein the fact of investment in short term money fund investments was mentioned. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has also raised an amount of Rs.50.80 crores by issue of fresh preference shares as is apparent from paper book page 200. In view of the above facts and figures it is apparent that assessee had utilized interest free funds for making fresh investments and that too into its subsidiaries which is not for the purpose of earning exempt income and which are for strategic purposes only. 8. In view of the above facts, we hold that no disallowance of interest is required to be made under rule 8D(i) & 8D (ii) as no direct or indirect interest expenditure has incurred for making investments. 9. As regards disallowance under Rule 8D(iii) we find that assessee had invested in four debt oriented schemes of DSP Merile Lynch, reliance Liquid Plus, Reliance Monthly Interval Mutual Funds and SBI Liquid Plus Funds. We find that these are not really investments and these are in fact parking of surplus funds in a more tax efficient manner. However, since these gives rise to exempt income in the form of dividend section 14A read with Rule 8D is applicable as held by Hon'ble Delhi High Court in the case of Maxopp In vestments. The Hon'ble Delhi High Court had held as under:- "24. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Act. In Walfort (supra), the Supreme Court made it very clear that the permissible deductions enumerated in sections 15 to 59 are now to be allowed only with reference to income which is brought under one of the heads of income and is chargeable to tax. The Supreme Court further clarified that if an income like dividend income is not part of the total income, the expenditure/deduction related to such income, though of the nature specified in sections 15 to 59, cannot be allowed against other income which is includable in the total income for the purpose of chargeability to tax. Similarly the Hon'ble Bombay high Court in the case of Godrej & Boyce Manufacturing Co. Ltd. observed as under:- "In order to determine the quantum of the disallowance there must be a proximate relationship between the expenditure and the income which does not form part of total income. Once such a proximate relationship exists the disallowance has to be affected., All expenditure incurred in the earning of income which does not form part of total income has to be disallowance subject to compliance with the test adopted by Supreme Court in Walfort and it would not be permissible to restrict the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed is ½ percentage of the numerator B in Rule 8D(2)Iii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in the Rule 8D(2)(ii). Thus, not all investments become the subject matter of consideration when computing disallowance u/s 14A read with Rule 8D. The disallowance u/s 14A read with Rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. (A.Y.) (I.T.A. No.1331/Kol/2011 dated 29.7.2011." Following the above judicial precedents, we held that value of strategic investments should be excluded for the purpose of disallowance under Rule 8D)iii) facts, we direct the Assessing Officer to calculate the disallowance under Rule8D(iii) by excluding the value of strategic investments in the calculation of disallowance. As regards disallowance under Rule 8D(i) and 8D(ii) we have already held that no disallowance is warranted. 10. In the result, the appeals filed by the assessee are partly allowed for statistical purposes whereas the appeal filed by the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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