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TMI Blog2014 (11) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... O that the assessee had investments worth Rs. 77,57,63,341/-in the form of shares in various companies and investment of Rs. 12,07,42,035/- in a partnership firm. These investments which were made during the previous year relevant to AY: 2009-10 continued without change for AY : 2010-11 also. AO sought explanation from the assessee why a disallowance u/s 14A of the Act should not be made. For AY: 2009-10, the assessment proceedings were selected for monitoring by Addl.CIT, Range-II, Bangalore under powers vested on him u/s 144A of the Act. The Addl.CIT, also had issued a notice on 31-05-2011, proposing a disallowance u/s 14A of the Act. Reply of the assessee was that the interest expenditure incurred by it was on loans raised from M/s India Bulls which were used for its day today working. As per the assessee it was the holding company of about ten number of companies and as a part of its regular business was taking advance from group companies and giving advances to other group companies, as per the availability and requirement of funds. Argument of the assessee was that nothing out of the loan amount was used for making any investments which attracted Sec.14A of the Act. Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents made by it and when there was mixed pool of funds available, the presumption was that investments were made out of interest free funds. Relying on the decision of the Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities & Power Ltd., 313 ITR 340(Bom.), he deleted the disallowance made by the AO under rule 8D(2)(ii) of the Act. However, insofar as the disallowance made under rule 8D(2)(iii) was concerned, learned CIT(A) had it be correctly made. As per the learned CIT(A) the rule only provided a formula for estimating indirect expenditure and the AO had no discretion but to apply such rule. 5. Now before us, learned DR strongly assailing the order of the learned CITA) insofar as it relate to deletion of the disallowance made under rule 8D(2)(ii) of the Act, submitted that the CIT(A) had considered certain additional particulars filed by the assessee. As per the learned DR an additional ground has also been raised by the revenue citing violation of Rule 46A of the IT Rules. As per the learned DR the workout of own funds given by the assessee was accepted as such by the learned CIT(A),without putting it to the AO. According to him, assessee was unable to show f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was as under: "Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in upholding the decision of CIT(A) in deleting the disallowance of Rs. 2,03,752/- u/s.14A ignoring the fact that there is difference of opinion of various courts on the view taken by the ITAT that in the absence of tax free income, no disallowance u/s.14A is permissible." 9. The High Court while answering the above question held as under:- "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41.10 lakhs overlooking the fact that the borrowed funds were used by the Assessee Company to invest in the Capital of another Partnership Firm and since profits derived by the Assessee Company from a Partnership firm were exempt from tax u/s.10(2A) of the Income-tax Act, the interest expense related to such tax free profits is to be disallowed u/s.14A of the Income Tax Act? In so far as Question (A) is concerned, on facts we find that there is no profit for the relevant assessment year. Hence the question as framed would not arise." 13. Similar view has been taken by the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. M/s. Lakhani Marketing Incl. in ITA No.970 of 2008 dated 2.4.2014. The Hon'ble High Court while affirming the decisions of CIT(A) as well as the Tribunal in deleting the disallowance made under section 14A observed as under:- "7. After hearing learned counsel for the parties, we do not find any merit in the appeals. The primary issue that arises for consideration in these appeals is whether the CIT(A) as well as the Tribunal were right in allowing deduction of interest liability out of other income and the claim of the revenue to disallow the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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