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TMI Blog2016 (2) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... abad for AY. 2009-10 framed u/s. 143(3) of the Income Tax Act [Act]. 2. The assessee raised the following grounds: 1. The disallowance of interest is not correct on the facts and the provisions of Sec.14A do not apply to the appellant s case, when the net owned funds are more than the value of investments. 2. On the above and other grounds that may arise during the appeal, the appellant requests for order of deletion of the addition made . 3. The only issue in this appeal is as to whether the disallowance made under the provisions contemplated u/s. 14A of the Act is applicable or not in the circumstances of the case? 4. The brief facts of the case are that the assessee is a company and is engaged in the business of manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) on the ground that the Section 14A of the Act is not applicable to the present case. When the Section 14A of the Act is not applicable, the disallowance of Rule 8D(2)(iii) of Rules is not in pursuance of the order passed in the case of HDFC Bank Limited Vs. Dy.CIT by the Hon'ble High Court. 8. The Ld. DR relied on the order of the ITAT D Bench, Mumbai in the case of HDFC Bank Limited Vs. DCIT dt. 23-09-2015 which consider the whole gamut of judgments to support the order of the CIT. 9. We have considered the rival contentions and perused the material on record. Even though assessee submitted before Ld. CIT(A) that it acquired shares for trading, no such income was disclosed nor assessee supported by statement of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the issue as under: 7.1 On careful reading of the aforesaid provision, it would be evident that it is in three parts. The first part contained in sub-rule D(2)(i), speaks of disallowance of the amount of expenditure directly relating to income which does not form part of the total income. Second part under sub-rule 8D(2)((ii) deals with disallowance to be computed on the basis of formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The third part as provided under Sub-Rule 8D(2)(iii) is an artificial figure i.e. one-half per cent of the average investment, income from which does not or shall not form part of the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or (c) accrues or arises57 to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6)* of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income referred to in rule 8D(2)(i) cannot be in abstract. It must relate to a previous year income of which is sought to be assessed. Therefore, as a natural corollary it follows that only expenditure directly relating to income which is earned either on receipt basis or on accrual basis and which does not form part of total income of a particular assessment year can be disallowed under clause (i) of Rule 8D(2). Rule 8D(2)(i) does not refer to the investment made by the assessee. On a conjoint reading of clause (i) and clause (iii) of Rule 8D(2), the difference between them is clearly discernible. While clause (i) speaks of disallowance of expenditure directly relating to income which does not form part of total income, clause (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is not earned during the relevant previous year, then, they would have used the expression does not or shall not form part of total income as appearing in rule 8D(2)(iii) instead of words does not form part of total income . That being the case, AO cannot disallow expenditure relating to investment which has not yielded any exempt income during the previous year relevant to the assessment year under dispute. Therefore, we direct the AO to disallow the expenditure relating to investments resulting in income earned/accrued which does not form part of total income of the impugned assessment year. However, so far as AO s computation of expenditure to be disallowed under rule 8D(2)(iii), the same in our view, is in conformity with Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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