9911796707
TMI Blog2011 (8) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... s we refer to the facts in AY 2006-07. Common ground raised in both the appeals, which reads as under:- "In the facts and circumstances of the case and in law, the learned CIT(A) erred both in facts in law in partly sustaining the disallowance made by the AO u/s 14A of the Act, 1961." 3. Briefly stated the facts of the case are that the assessee filed its return of income on 13/11/06 declaring total income of Rs. 38,75,60,710/- and, thereafter, a revised return was filed on 18/03/08 declaring income of Rs. 35,78,21,940/-. The return of income was processed u/s 143(1) on 10/01/2008. Notices u/s 143(2) was served on 16/04/07 and notice u/s 142(1) along with questionnaire was issued. In response to the said notices, the AR of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness got merged and lost their identity on transfer of balance to common pool account. Point was made that when both borrowed and loan funds exceed the interest free loan on investment, the presumption can be made that investments or interest free loans have been made from surplus funds and not from borrowings. For this contention, reliance was placed on the decision of Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd., 313 ITR 340 and the decision of the ITAT, Delhi in the case of Maruti Udyog Ltd. Vs. DCIT, 120 ITD 119. It was submitted that since the assessee had sufficient interest free funds available for the purpose of investments, no disallowance u/s 14A is called for as no expenses can be said to have been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lances are too obvious and accordingly, investments could not have been sourced from any source other than these overdrawn balances. The appellant on its part has not been able to specif ically substantiate that the investments had been made out of the surplus funds. In this respect, I f ind the appellant's argument on the merging of the loan funds and the cash accruals from business too general and simplistic. The appellant has argued that it had cash prof its earned during the year but at the same time it has not been able to prove that it is these cash prof its which were used for such a substantial investment of Rs. 242.10 mill ion. In absence of a direct nexus, his presumption is lopsided particularly when the appellant's borrowings ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'in accordance with the provisions of subrule (2) of the IT Rules". The highlighted portions will make it clear that once provisions of section 14A are found to be applicable, Rule 8D is the method to be followed to work out the quantum of the disallowance. In this respect, provisions of subsection (2) & sub-section (3) of section 14A are also very clear. As may be noted, sub-section (2) of section 14A clearly stipulates that the amount of expenditure in relation to the exempted income is to be determined ' in accordance with such method as may be prescribed' and Rule 8D being that method, is, to be mandatorily followed. The applicability of Rule 8D in sync with section 14A has also been upheld by the Hon'ble ITAT Special Bench, Mumbai in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net profit available with the assessee is of Rs. 41 crores. Therefore, he argued that the assessee is having sufficient own funds to make investments. When the sufficient own funds are available with the assessee while the assessee also borrowed funds, the presumption goes in favour of the assessee that the investments made by the assessee is from own funds, for which he placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Reliance Utilities and Power Ltd., [2009] 313 ITR 340 (Bom.). He further submitted that the revenue authorities have not applied section 14A in AY 2004-05. It is pointed out that no borrowings were taken in the year under consideration. 7. The learned DR, on the other hand, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balances are too obvious, therefore, investments could not have been sourced from any other source other than the overdrawn balances. The CIT(A) confirmed the order of the AO by approving the said findings of the AO and directed the AO to follow the decision ITAT in the case of Daga Capital Investment Ltd. and work out the disallowance in terms of the method spelt out in Rule 8D. Before us, the learned counsel for the assessee has established that the assessee has got sufficient own funds to make investments by way material evidence vide pages 89 & 10 of the assessee's paper book. It is seen that the increase in investment during the year is only by Rs. 242.10 millions whereas the shareholder fund of the assessee has increased to 1752 milli ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
