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TMI Blog2011 (8) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... or the sake of convenience. 2. To decide these appeals 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 ₹ 38,75,60,710/- and, thereafter, a revised return was filed on 18/03/08 declaring income of ₹ 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 attended from time to time and filed the details called for. The assessee company is running a retail departmental store in the name of Shoppers Stop through its various outlets spread across the Country. The AO noted that the year under consideration the assessee had made total investment of ₹ 242.1 million in shares of its group concern on various dates vide assessee s l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the CIT(A) held as under:- 2.2 I have considered the assessment order and the submissions of the appellant. As I see, whereas the AO has attributed the source of the investments to overdrawn balances in the bank account, the appellant has countered it by holding that it had mixed funds and that the investments had been made out of the surplus portion of the mixed funds., weighing these two positions on the scale of the facts and the provisions of section 14A of the Act, I agree with the AO. As I see, the AO has come to his specif ic f inding on the basis of circulation of money in the appellant s bank account. In this process, I see, AO has discovered that the multiple transfers from the OD account of one bank to CC account of another bank has led to a situation where all the bank accounts have overdrawn balances. In this backdrop, I f ind that the AO has rightly held that the investments have been made out of borrowings from banks. As I see, the overdrawn balances 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 inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case of ITO Vs. Daga Capital Management Pvt. Ltd. In this decision, the Hon ble ITAT has specif ically held that section 14A having retrospective operation, the Rule 8D would also be correspondingly retrospective in operation. Accordingly, as I f ind, whereas the AO has rightly held that investments have been made out of borrowed funds, he has erred in not applying Rule 8D while computing the disallowance. In this light, I uphold the AO s decision that the investments have been made out of borrowed funds. As far as the quantum of disallowance is concerned, I f ind that the appellant has given its working for disallowance under Rule 8D. The AO is directed to verify this and work out the disallowance in terms of the method spelt out in Rule 8D. The grounds of appeal are, this, partly allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of interest expenditure by invoking section 14A of the Act. The case of the assessee is that the assessee is having sufficient own funds and when he has borrowed funds even if he is having own funds, the presumption always goes in favour of the assessee that the assessee made investments out of own funds, therefore, the provisions of section 14A of the Act, is not applicable to the case of the assessee. The AO has not accepted the submissions of the assessee on the ground that the investments have been made out from borrowed funds from the bank and the overdrawn 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 investme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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