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TMI Blog2015 (12) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... nts yielding tax-free income is a relevant factor need to be borne in mind. It is not the case of the Revenue that any direct expenses including interest expenses have been incurred. in the case of CIT vs. HDFC Bank Ltd. reported in (2014 (8) TMI 119 - BOMBAY HIGH COURT), wherein the Hon'ble High Court categorically held that in-principle, if there are funds available both interest-free and interest bearing, then a presumption would arise that investment would be out of interest-free funds generated or available with the assessee, if the interest-free funds were sufficient to meet the investments. Hence,disallowance retained by the CIT(A) under Rule 8D(2)(ii) of the Rules is not sustained in law and is therefore directed to be deleted - Decided in favour of assessee. Disallowance carried out under Rule 8D(2)(iii) of the Rules - Held that:- We find that the assessee itself has made a disallowance of ₹ 35,007/- being one month salary of its Accountant towards estimated expenses attributable to the tax-free income. Thus, admittedly, certain expenditure is accepted to have been incurred by the assessee. It is the quantum of estimation which is subject matter of dispute. Statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o incorrectness of expenses worked out by the appellant's is reached by the learned AO prior to making the said disallowance. 3. The learned CIT(A)-V, Pune and the learned AO erred in law and on facts in making disallowance of interest u/s 14A of the ITA, 1961 disregarding the fact that, investments in various companies are made by the appellant from it's own funds. The learned I-T authorities further erred in law in not following ratio of CIT vs. Reliance Utilities Power Ltd. - 313 ITR 340 (Bombay) as regards the theory of presumption of investments from own funds. 4. The learned CIT(A)-V, Pune erred in law and on facts in sustaining ad-hoc disallowance of expenses @ 0.50% on average investments of the appellant without appreciating the reasonable disallowance of ₹ 35,007/- worked out by the appellant. 5. The appellant craves leave to add / alter / amend / delete all / any of the Grounds of Appeal. 3. In this appeal, the solitary dispute raised by the assessee is with regard to the correctness of disallowance sustained by the CIT(A) to the extent of ₹ 6,35,558/- against total disallowance made by the Assessing Officer (AO) of ₹ 10,84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Rule 8D of the Rules for working of disallowance. Nonetheless, the CIT(A) agreed to the contention of the assessee that the total investments generating tax-free dividend income also include investments in shares of overseas companies where the dividend are taxable. Therefore, same has to be suitably excluded for the purposes of calculation of disallowance under Rule 8D of the Rules. The CIT (A) admitted this plea of the Assessee and the revised working of the assessee filed as per letter dated 11.02.2013 as reproduced in para 10 of his order were accepted. As per revised working, the disallowance of proportionate interest under Rule 8D(2)(ii) of the Rules worked out to ₹ 3,59,897/- and disallowance of administrative expenses, etc. being 0.5% of average value of investment under Rule 8D(2)(iii) of the Rules worked out to ₹ 3,10,668/-. Accordingly, the disallowance under section 14A of the Act r.w. Rule 8D of the Rules was reduced and revised to ₹ 6,70,565/- as against the aggregate disallowance of ₹ 10,84,990/- computed by the Assessing Officer. 7. Aggrieved by the impugned order of the CIT(A), assessee is in appeal before us. 8. The Ld. Authoriz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act without recording satisfaction as to incorrectness of expenses worked out by the assessee. For this proposition, he relied upon the decision of the Kolkata Bench of the Tribunal in the case of Balarampur Chini Mills Ltd. vs. DCIT reported in (2011) 140 TTJ 73 (Kol) (UO). He, therefore, submitted that there is no justification to invoke Rule 8D(2)(iii) to invite estimated disallowances by invoking Rule 8D of the Rules. 10. The Ld. Departmental Representative for the Revenue relied upon the orders of the authorities below and pleaded that no interference with the order of the CIT(A) is called for. 11. We have carefully considered the rival submissions, orders of the authorities below and perused various case laws cited. To begin with, We find that it is an admitted position that no expenses directly attributable to the earning of dividend income has been quantified as per Rule 8D(2)(i) of the Rules. Secondly, proportionate disallowance has been made towards interest expenses attributable to the average investments held by the assessee as per formula laid down in Rule 8D(2)(ii) of the Rules. The plea of the assessee is that non-interest bearing own funds as source fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mula for computation of disallowance to cover up probable indirect administrative expenses relatable to tax free income. The assessee has not given any scientific basis for arriving at its own estimation. Ostensibly therefore, preference need to be given to statutory formula over the ad-hoc estimation made by the assessee. The onus lay upon the assessee to prove the quantum of expenditure incurred in earning the taxfree income which remains un-discharged. 13. Accordingly, we decline to interfere with the disallowance sustained by the CIT(A) under Rule 8D(2)(iii) of the Rules which is quantified at Rs. ₹ 3,10,668/-. Thus, on this count, the plea of the assessee fails. 14. The Assessee has inter alia also taken a legal plea and has objected to authority of Assessing Officer in invoking section 14A of the Act in the absence of requisite 'satisfaction' in this regard. In this context, We find that the Assessing Officer has recorded a finding a finding of fact that the investments have been made out of OD/CC account which are interest bearing funds and these accounts are primary source of funding. It is also borne out from the record that Assessee itself has admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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