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TMI Blog2015 (3) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee say that it had incurred no expense covered by section 14A of the Act for its investment portpolio, AO has to make a verification. Especially so, when incremental investments is negligible. In these circumstances, we are of the opinion that CIT(A) while he was justified in deleting the disallowances made under Rule 8D(2)(ii) and ought not have sustained the disallowance made under Rule 8D(2)(iii). Order of the learned CIT(A) is set aside to the extent. Disallowance under rule 8D(iii) is also deleted. - Decided in favour of assessee. - ITA No. 404(Bang) 2013, C.O. No. 89(BANG)/2013 - - - Dated:- 20-2-2015 - Shri Rajpal Yadav And Shri Abraham P George,JJ. For the Petitioner : Shri V. Chandrasekhar, Advocate For the Respondent : Dr. P. K. Srihari, Addl. CIT ORDER Per Shri Abraham P George, AM: This appeal and Cross Objection are directed against an order dated 21-12-2012 of CIT(A)II, Bangalore. Grounds raised by the revenue in its appeal is on the deletion of disallowance made by the AO under Rule- 8D(2)(ii) of the Income Tax Rules 1962 read along with Section 14A of the Income-tax Act, 1961.( in short The Act ). As per the revenue, a disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income. Reliance was placed on the decision of Hon ble P H High Court in the case of CIT Vs Hero Cycles Ltd.,323 ITR 518 and that of Chennai Bench of the Tribunal in the case of Siva Industries Holdings Ltd., Vs ACIT 59 DTR 182. Assessee also pointed to the CIT(A) that investments were all made prior to the relevant previous year. 5. Learned CIT(A) after considering submissions and details filed by the assessee held that assessee had interest free funds which satisfied the requirement of the investments made by it. As per the CIT(A) major portions of the investments were made during FY: 2005-06. He therefore, held that disallowance under Rule 8D(2)(ii) was not called for. However, vis-a-vis disallowance made under Rule 8D(2)(iii), learned CIT(A) was of the opinion, that no investment could stand together for years without any expenditure. As per the learned CIT(A), disallowance under Rule 8D should be limited to what was mandated under sub-clause(iii) thereof. He therefore, deleted the disallowance made under Rule 8D(ii) while confirming the disallowance made under Rule 8D(2)(iii) of the Act. 6. Now before us, learned DR strongly assailing the order of the CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded the necessary satisfaction for discounting the claim of the assessee of having incurred no expenditure vis- -vis the tax free investments. Thus, according to him, there was no case of disallowance u/s 14A of the Act. 8. We have heard the rival contentions and perused the orders carefully. A look at the balance sheet of the assessee would show its share capital and reserves as on 31-03-2008 and as on 31-03-2009 as under; Share holders fund: As at 31-03-2009 As at 31-03-2008 a) Share capital 174,001,100 174,001,100 b) Reserves Surplus 352,451,754 346,701,344 526,452,854 520,702,444 Apart from this, assessee had rental deposits from its tenants, which as per schedule-IV of its balance sheet dated 31-03-2009. a) Payable to IBM India for rent deposit for SA 73,471,321 73,471,321 b) Payable to EMC for rent deposit 40,986,000 35,640,000 c) Payable to IBM India for rent deposit for block A 69,129,574 69,129,574 d) Payable to IBM India for rent deposit for block C 110,643,679 110,643,679 e) Payable to CISCO for rent deposit for block D 156,315,852 156,315,852 f) IBM Tower KEB refundable deposit 14,493,848 14,493,848 g) CISCO KEB refundable deposit 7,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that no nexus of such kind was proved before the Assessing Officer. Thus, when there was sufficient interest free funds available with the assessee and when the Department failed to establish the link between the borrowed fund and the investment made by the assessee in the equity shares, addition made on account of disallowance of ₹ 6,62,50,000/- by Assessing Officer has been rightly deleted by both the CIT(A) and the Tribunal. 5. It would be apt to refer to the decision of this Court rendered in the case of Commissioner of Income Tax vs. Raghuvir Synthetics Ltd. in Tax Appeal No.829 of 2007 where the question was of assessee having given interest free loans to the associates concerns when it was otherwise paying the interest on certain funds it had borrowed. Factually, when it was found that huge funds were available without any interest liability with the assessee and with no evidence to indicate that the borrowed money was utilized for the purpose of advancement of the sister concerns, the assessee was held eligible for allowance of the interest. 6. Reference is needed here to the judgment of the Delhi High Court in the case of Commissioner of Income-Tax vs. Kri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction 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 this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section147 or pass an order enhancing the assessment or reducing are fund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be made to decision of this Court dated 4.11.2009 in ITA No.331 of 2009 Commissioner of Income Tax- II Versus M/s Hero Cycles Limited wherein this controversy has been set at rest. Paras 3 and 4 of the said judgment for ready reference are given as below: 3. Learned counsel for the appellant relies upon Section14A (2) and Rule 8D (1) (b) to submit that even where the assessee claimed that no expenditure had been incurred, the correctness of such claim could be gone into by the Assessing Officer and in the present case, the claim of the assessee that no expenditure was incurred was found to be not acceptable by the Assessing Officer and thus disallowance was justified. We are unable to accept the submission. 4. In view of finding reproduced above, it is clear that the expenditure on interest was set off against the income from interest and the investment in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under Section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the revenue that directly or indirectly some expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 49.13 Crores. Hence no portion of the loans from banks was used for the purpose of investments. With regard to investment in Drive in Enterprises, the said amount is on account of revaluation of lease hold right and hence no cash has been paid . Though, nothing specific has been mentioned about non-incurring of any indirect expenditure, it is clear that major part of the investments were done in FY: 2005-06. Incremental investment was only 4.80 lakhs. The investment which yielded the dividend income of ₹ 33,600/- claimed as exempt, came from shares worth ₹ 2,30,400/- held in M/s Indian Overseas Bank, which holding was the same all though, brought forward from earlier year. Under section 14A of the Act, once assessee has taken a stand that it had not incurred any expenditure under section 14A, then in our opinion, the AO is not justified in invoking Rule 8D(2)(iii) for a disallowance of indirect expenditure unless he recorded his dis-satisfaction of claim. It is essential such non-satisfaction has to be given with cogent reasons before invoking Section 14A. Doctrine of satisfaction no doubt, does not mean that an AO should presume what was in the mind of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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