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TMI Blog2015 (1) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... come. These are only clarificatory provisions and the main clause of section 14A applied for all periods after its introduction in the statute which authorizes the officer to make disallowance of the expenditure incurred for earning tax free income, irrespective of whether the assessee maintained separate accounts or not - the assessee-banks did not have separate accounts for the expenditure incurred towards interest paid on funds borrowed such as deposits utilized for investment in securities, bonds and shares which yielded tax free income - In the absence of separate accounts for investments which earned tax free income, the AO worked out a formula which was the average cost of deposit in the year under consideration and applying it he made proportionate disallowance of interest attributable to the funds invested to earn tax- free income - The disallowance on estimated basis had to be done as above until rule 8D was framed and thereafter it was for the AO to make disallowance by following sub-section (2) of section 14A and rule 8D of the Rules – Decided against assessee. Treatment of surplus realized on sale of pledged jewellery as income of the assessee – Held that:- Following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us. 5. The Ld. AR submitted that the assessee had earned tax free income aggregating to ₹ 7,75,634/- for the assessment year 2008-09 and ₹ 6,03,939/- for the assessment year 2009-10. According to the Ld. AR, in the return of income filed, the assessee had not disallowed any expenditure since no expenditure was incurred to earn tax free income. The Assessing officer rejected the claim of the assessee and held that the provisions of rule 8D are to be applied. However, he restricted the disallowance to the extent of the tax free income. On appeal, the CIT(A) held that the Cochin Bench of the Tribunal in assessee's own case for the assessment year 2005- 06 held that the disallowance made by the Assessing officer was justifiable and accordingly, dismissed the ground of the assessee. 6. The Ld. AR relied on the judgment of the Kerala High Court in the assessee's own case reported in 344 ITR 259 for the assessment year 2001- 02 wherein it was held that since separate accounts in respect of expenditure on earning tax free income books are not maintained, proportionate disallowance was warranted. The assessee submitted that the said decision was not applicable for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd at best only 0.5% of average investments the income from which shall not or does not form part of the total income can be disallowed. Hence, the Ld. AR submitted that in the facts of the assessee's case, no disallowance u/s. 14A is warranted. 11. On the other hand, the Ld. DR submitted that this issue is squarely covered by the order of the Cochin Tribunal in the assessee's own case for the assessment year 2005-06 in I.T.A. Nos. 10&66/Coch/2009 dated 11-02- 2011. 12. We have heard both the parties and perused the record. We find that an identical issue came up for consideration before the Jurisdictional High Court in assessee's own case reported in 344 ITR 259 wherein it was held as under: "Section 14A of the Income Tax Act, 1961, was inserted by the Finance Act, 2001, with retrospective effect from April 1, 1962. The object of section 14A is to ensure that so much of the expenditure incurred for earning income that does not constitute total income of the assessee, should not be allowed. In other words, when income is outside the tax net, expenditure incurred for earning such income should not be allowed to be set off in the computation of taxable income. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed reconsideration because in the first place, the facts and figures were not available. Further, the assumption of the Assessing officer that the entire investments in bonds, shares and securities for earning the tax free income was from the borrowed funds (deposits) was also not justified. The matter had to be restored to the Assessing officer for making disallowance u/s.14A by reasonably estimating as nearly as possible the expenditure incurred for earning tax free income. This should be done after giving opportunity to the assessee-banks to suggest their own formula with reference to accounts for the purpose of arriving at the actual amount or near actual amount. The disallowance on estimated basis had to be done as above until rule 8D was framed and thereafter it was for the Assessing officer to make disallowance by following sub-section (2) of section 14A and rule 8D of the Rules. So far as the disallowance of administrative expenditure was concerned considering the fact that there was no precise formula for proportionate disallowance, no disallowance for proportionate administrative cost attributable to earning of tax free income was called for until rule 8D came into force. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The next ground in I.T.A. No. 326/Coch/2014 is with regard to addition made on account of excess cash found by the assessee as income of the assessee. 18. We have heard both the parties and perused the record. We find that a similar issue came up for consideration before the Jurisdictional High Court in the assessee's own case reported in 349 ITR 569 wherein it was held as under: "That when there was no possibility of any one claiming any amount against the surplus in the suspense account maintained by the assessee the as could not treat it as a liability or a provision for liability. Further, as and when a claim was made and the assessee had to make any payment, the payment would be allowable as a deduction in the year in which the claim was made. The Tribunal rightly rejected the claim of the assessee at least in respect of the arrears carried over for several years. However, the excess found during the previous year need not be treated as income and could be treated as surplus in the suspense account for three years to meet a liability in the event of any claim being made. The amount did not represent liability and was wrongly shown by the assessee as liability. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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