9911796707
TMI Blog2015 (7) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... es comes to 1,01,37,215/- and after deducting interest received by the assessee on fixed deposit of 21,03,300/- the net interest debited in the profit and loss account comes to 80,33,915/- and these figures have not been disputed by the ld. DR. In this situation, while the assessee has earned dividend income on equity shares amounting to 11,32,575/- and on mutual funds of 9,51,042/- then interest paid to bank on overdraft facility amounting to 3,38,505/- and bank charges of 2,46,968/- may be related expenses of business activities of the assessee which also includes investments which brings tax free dividend income to the assessee. Therefore, in totality of the facts and circumstances, we are of the considered view that the invocation of Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been worked out as per the method provided in Rule 8D of the Income-tax Rules, 1962 ('the Rules') since the same was prospective in operation and was not applicable to the year under consideration." 4. Briefly stated the facts giving rise to these cases are that the AO selected the case for scrutiny and noticed that the assessee had claimed exemption u/s 10(34) of the Income Tax Act, 1961 (for short the Act) of ₹ 20,83,618/- on dividend income. The AO vide questionnaire dated 17/10/2008 asked the assessee to show cause why not proportionate expenses be disallowed u/s 14A of the Act for earning dividend income being exempted income. After considering replies of the assessee dated 11/12/2008 and 17/12/2008 the AO invoked Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of interest of ₹ 15,35,233/- u/s 14A with respect to dividend income which is adjudicated accordingly. 3.1 The facts emanating from the order of the AO and the submissions of the assessee is that the assessee is a partnership firm and is a distributor of dry cell batteries. The assessee has received the dividend income of ₹ 20,83,618/- and claimed the same as exempt u/s 10(34). The total investment of the assessee in the stock/mutual fund is ₹ 1,40,04,084/-. The assessee has declared the interest income of ₹ 21,03,300/- and has claimed the net interest payment of ₹ 80,33,914/- and the assessee has also claimed the interest payment of ₹ 88,94,929/- to partners capital. The AO has applied th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that since the provisions of Rule 8D is applicable with effect from AY 2008- 09 only and the same is not applicable in the case of the assessee as the case of the assessee relates to AY 2006-07, it was argued that at the best a nominal lump sum disallowance of the interest may be made. 3.3 I have considered the addition of the AO and the submissions of the assessee and I find merit in the submissions of the assessee regarding the provisions of Rule 8D to the extent that the provisions of Rule 8D is effective only w.e.f. AY 2008-09 as the same was notified on 24/03/2008 and the same view has also been taken by the Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. Vs. DCIT (supra). 3.4 Even if it is presumed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33/- (-) ₹ 1,00,000/-) is deleted." 7. In view of above, at the outset, we are in agreement with the conclusion of the CIT(A) that as per decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (supra) the Rule 8D of the Rules is applicable from A.Y. 2008-09 onwards and the AO was not justified in invoking Rule 8D for making impugned disallowance. We are also in agreement with the conclusion of CIT(A) that even when Rule 8D of the rules is not applicable in the present case of the assessee pertaining to A.Y. 2006-07 but at the same time it cannot be denied that the assessee has a tax free dividend income on which some part of the expenses would have been incurred and which is otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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