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TMI Blog2015 (7) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14A, which provides that even in a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of total income, still disallowance can be made by AO. In view of the aforesaid, we direct AO to compute disallowance @ 0.5% of the total average investment in terms with rule 8D(2)(iii) of IT Rules. - Decided partly in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... not from borrowed funds. She also observed that though assessee was requested to submit copy of the bank account reflecting loans taken and the dates of investments made, but, assessee did not furnish such information. Ld. CIT(A) referring to the decision of the Hon'ble Mumbai High Court in case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT held that as rule 8D of the IT Rules, applicable from AY 2008-09, AO in case was not satisfied with the accounts of assessee can make disallowance by applying the said rule. On the aforesaid reasoning, she confirmed the disallowance made by AO. However, she directed AO to exclude an amount of ₹ 33,40,353 while computing disallowance u/s 14A of the Act, as the said amount is not pertaining to investment. 7. Ld. AR more or less reiterating the submissions made before ld. CIT(A), stated that at the time of demerger itself there was an investment of ₹ 7,83,12,754 made by ATPL. Ld. AR referring to the balance sheet of assessee company as at 31/03/08 submitted, during the year assessee was having own funds of ₹ 58,35,40,000 as share capital and unsecured loans of ₹ 7,84,25,062, which is available with assessee apart from the secure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as having surplus funds. In other words, a link has to be established between investments and availability of surplus funds. Ld. DR referring to the cash flow statement of assessee, for the year ended 31/03/2008 submitted, cash available to assessee is ₹ 19,19,81,663 and ₹ 6,40,36,344 totalling to ₹ 25,60,18,007, whereas, assessee has made investment of ₹ 24,24,87,035. That itself proves nexus between investment and the borrowed funds. Ld. DR submitted, assessee simply referring to the closing balance in the cash flow at the end of the year cannot claim that investments were made out of surplus funds. Thus, it was submitted, conditions of section 14A of the Act having been satisfied, disallowance made is in order. In support of his contention, ld. DR relied upon the following decisions: 1. Siva Industries & Holdings Ltd. Vs. ACIT, 54 SOT 49 (Chennai) 2. ACIT Vs. Champion Commercial Co. Ltd., 139 ITD 108 3. ITO Vs. RBK Sharebroking Pvt. Ltd., [2013] 54 ITCL 164 4. Dabur India Ltd. Vs. ACIT, [2013] 145 ITD 175 5. CIT Vs. State Bank of Travancore, 203 Taxman 639 6. Cheminvest Ltd. Vs. ITO, [2009] 121 ITD 318 9. We have considered the submissions of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on record to indicate that borrowed funds were utilized for making investments, in our view, no disallowance u/s 14A read with rule 8D (ii) & (iii) can be made. The Hon'ble P & H High Court in case of CIT Vs. Hero Cycles Ltd. (supra) while dealing with the issue of disallowance u/s 14A held that there must be a finding of fact that interest expenditure was incurred for earning exempt income. The relevant observation of the Hon'ble High Court is extracted hereunder: "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 expenditure is always incurred which must be disallowed under s. 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of s. 14A, cannot be accepted. Disallowance under s. 14A requires finding of incurring of expenditure; where it is found that for earning exempted income no expenditure has been incurred, disallowance under s. 14A cannot stand." 9.1 In our view, the principle laid down by the Hon'ble Punjab & Haryana High Court, would still apply even after intro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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