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TMI Blog2014 (4) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... of appreciation in the face value by adopting the market value of investments amounting to Rs. 342,198." 3. As for the first grievance of the assessee relating to disallowance of expenditure attributable to the dividend income which is exempt from tax, facts, in brief, are that in terms of S.14A of the Act, the Assessing Officer while making the assessment noted that the assessee has certain interest bearing loans from various related (share holders) persons and interest is paid on these borrowings. The Assessing Officer also asked the assessee furnished the details of expenditure incurred by the assessee for earning the dividend income. In response, assessee submitted that no expenditure was incurred for the purpose of earning the dividend income, and no specialised staff was exclusively created for the purpose of making investments, and the expenditure that is normally incurred for its regular business activities, is considered even for earning dividend income. Not satisfied with the explanation of the assessee, considering the volume of investments in the shares/mutual funds, which is very high, and observing that certain amount of expenditure incurred by the assessee even in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been incurred in relation to earning of tax free income can be disallowed under S.14A. The word 'incurred' refers to the factual spending of expenditure in relation to the exempt income and does not refer to a deemed or assumed spending for the purpose. The section cannot be taken beyond this to attribute by some yardstick, every item of expenditure which has no apparent connection or earning of the tax free income. He also relied on Balarampur Chini Mills Vs/ Dy. CIT(ITA 504/Kol/2011, wherein it has been held by the Kolkata Bench of the tribunal that the interest expenditure which is directly relatable to the any particular income or receipt is not to be considered under Rule 8D(2)(ii) The Assessing Officer has to show that the interest is not directly attributable to any particular income or receipt and also since the assessee has substantial capital and reserves, the interest on loans cannot be included under Rule 8D(2)(ii). The learned counsel relied on the following decisions for the proposition that S.14A cannot be applied where interest free funds are available. (a) CIT V/s UTI Bank Ltd. (ITA no.2572/Ahd/2006 and ors)-Trib (b) Catholic Syrian Bank Ltd. & Ors. (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, which squarely applies to the facts of the case on hand, no disallowance in terms of S.14A is called for, merely based on the presumption that certain expenditure must have been incurred, by resorting to estimation of such expenditure. For bringing any interest expenditure claimed by the assessee under the ambit of Rule 8D(2)(ii) the Assessing Officer has to show that the said interest is not directly attributable to any particular income or receipt. We find that the assessee in this case, has substantial reserves, and therefore, we find merit in the contention of the assessee that the investments have been made from out of the interest-free funds available with it. Hence, no disallowance out of the interest expenditure is called for in terms of S.14A of the Act, by estimating such interest expenditure as attributable to the amounts of investment. In this view of the matter, we do not find any justification for the addition sustained by the CIT(A). We accordingly delete the addition of Rs. 1 lakh sustained by the CIT(A) and allow the ground of the assessee on this issue. 9. As for the next ground relating to disallowance of provision for contingencies (NPAs) u/s. 36(2)(viia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly brought to tax the accrued interest on these securities. On appeal, the CIT(A), observing that interest had definitely accrued on the securities and as per the mercantile system of accounting this interest had to be brought to tax, and further observing that he assessee has not provided any evidence to show that nothing had accrued to it, confirmed the addition of Rs. 3,42,198 made by the Assessing Officer. 15. Aggrieved, assessee preferred this second appeal before us. 16. The learned counsel for the assessee, reiterating the contentions urged before the Revenue authorities submitted that the assessee has already accounted for interest accrued on IDBI bonds at 6.20% amounting to Rs. 62,849. However, for the other funds, they have to be valued at costs or NRV whichever is lower. The investments in Non-FLR investments in the category of Available For Sale investments valued at costs or NRV whichever is lower by following the accounting principles which are being in vogue for many years. These funds are not at any fixed interest to accrue. The statutory compliance that investments have to be valued by the assessee on RBI guidelines is satisfied. As for the accounting policy of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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