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TMI Blog2015 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... Out of the treasury expenditure of 65,50,068/- attributable to this activity, as per the earlier appellate orders only two months of treasury expenditure can be considered as directly attributable to exempt income. Accordingly, the disallowance u/s. 8D(i) can be determined at 10,91,678/- as originally disallowed by assessee. That leaves with 8D(iii). One half percent of average value of investment as worked out by assessee comes to 1,03,35,091/-. This amount only can be disallowed under Rule 8D(iii). Therefore, since assessee has already disallowed an amount of 10,91,678/-, further amount to be disallowed u/s. 14A r.w. Rule 8D is to an extent of 1,03,35,091/-. AO is directed to modify the order accordingly. - Decided partly in favour of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that these are interlinked and inter-laced and accordingly proportionate expenditure on the basis of operations of banking should be disallowed towards expenditure for earning the exempt income. He therefore based on the ratio of operating expenditure and interest expenditure to the total revenue of ₹ 5,080 Crores arrived at a ratio of 80.48% of expenditure. Adopting the same ratio, AO determined the expenditure to be disallowed at ₹ 4,11,46,288/-. 3. Assessee contested the same before Ld.CIT(A). While noticing that the provisions of Section 14A has to be invoked and disallowance has to be made in accordance with rule 8D which was effective from AY. 2008- 09, he directed assessee to furnish calculation of disallowance as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adequate funds for making these investments. Therefore, disallowance of proportionate interest out of the banking operations does not arise. Ld. Counsel relied on the following judgments for the proposition that if the investment is out of the non-interest bearing funds, disallowance u/s. 14A is not sustainable : i. Kerala High Court in the case of State Bank of Travancore [318 ITR 171] ; and ii. Punjab & Haryana High Court in the case of CIT Vs. Hero Cycles Ltd., [233 CTR 74] It was further contended that disallowance u/s. 14A requires finding of incurring of expenditure. 6. Ld. DR however, supported the consequential order of the AO and CIT(A) in the impugned appellate order. It was submitted that there was variation in figures and ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount of Expenditure by way of interest - (A) NIL Avg value of investments - (B) 206,70,18,211 Avg value of Assets - 490523272000+616197199000/2 - (c) A*B/C - ₹ 0 Investments, in the above mentioned securities have been made in various years by utilizing Paid up Capital, free reserves, and interest free Current A/c deposits. (Capital reserve has not been included for the purpose of Cost Free Funds.) From the above funds, which do not bear any interest, were available to the bank for investments to receive exempted income. (iii) one half % of Avg value of Investment- 206,70,18,211 *0.5%- 1,03,35,091 Total disallowance to be made is (i)+ (ii)+ (iii) = ₹ 1,68,85,159/- Amount disallowed in the Assessment Order - 4,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining that assessee has own funds to invest in the exempted value of investments. In our view, the working of the AO is neither according to the directions of the CIT(A) nor according to the facts of the case. Since the working itself is not supported by facts or law, CIT(A) should have examined the working of the disallowance. Instead present CIT(A) simply dismissed the appeal without examining the contentions of assessee. 9. As rightly pointed out before the AO, as well as before us interest arrived at by the AO in the consequential order is pertaining to the banking operations which cannot be disallowed u/s. 14A. Infact in the assessment order AO accepted assessee contention. As seen from the amount of investment and sources of funds, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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