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TMI Blog2016 (4) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Commissioner of Income Tax erred in confirming the addition of 0.5% of tax-exempted investment under the provisions of section 14A r.w.s. 8D of the Income Tax rules amounting to Rs. 5,25,381/- 2) The Learned CIT (Appeals) ought to have observed that total exempted income is only Rs. 29,000/- and therefore was wrong in disallowing Rs. 5,25,381/- as expenditure incurred to earn Rs. 29,000/- of income. 3) The Learned Commissioner of Income Tax failed to understand that the income is derived only out of investment of Rs. 92,800/- comprising of 5,800 equity shares of Union Bank of India which was held by the Assessee for the past several years. 4) The Learned Commissioner of Income Tax failed to note that as there was no investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above at the time of hearing the case with a prayer to restore the order of AO. 4. Briefly the facts of the assessee are as under: The assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacture and sale of Indian made foreign liquor. Return of income for the assessment year 2010-11 was filed on 9/10/2010. The said return of income was revised on 17/11/2010 and revised for the second time on 31/03/2011 declaring total income of Rs. 2,17,07,860/-. Against the said return of income, assessment was completed u/s 143(3) by the DCIT, Circle 11(4) vide order dated 25/03/2013 on a total income of Rs. 3,03,12,532/-. While doing so, AO made a disallowance of Rs. 80,93,286/- und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentions is that disallowance to be restricted to Rs. 29,000 which is the income derived out of exempt investment. In support placed reliance on the following case laws:- (i) ACIT vs. Punjab State Co-operative Marketing Federation Ltd. (25 Taxmann.com 434) (ITAT-Chandigarh) (ii) Sahara (India) Finance Corporation Ltd. vs. DCIT (41 Taxmann.com 251)(ITAT Delhi). 3.5 A perusal of the annual statement of Account for year ending 31.03.2009 and 31.03.2010 following facts emerged. Particulars As on 31.03.2010 As on 31.03.2009 Share capital 22,81,28,330 19,00,80,000 Reserves & Surplus 23,60,18,057 24,48,24,713 Total 46,41,38,387 43,49,04,713 Loan Funds Secured loan 93,48,17,250 100,80,76,041 Unsecured loan 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not form part of the total income under the Act and accordingly method of working out of such expenditure has been formulated under rule 8D of I.T. rules. However section does not envisage restriction of disallowance except as applicable under rule 8D of I.T. Rules. In Chennai invest Ltd. vs. ITO (2809) 121 ITD 318/124 TTJ (Delhi-Trib) 577 (SB) held that disallowance under section 14A can be made even in a year in which, no exempt income has been earned or received by the assessee, thus proportionate interest pertaining to investment for earning of dividend was disallowable even though exempt income (dividend) was not earned during the year. " However, the ld.CIT(A) confirmed the disallowance made under rule 8D(2)(ii) of Rs. 5,25,381/- hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made in subsidiary company i.e. Chitalia Distilleries is Rs. 28,75,39,716/-. Therefore, he submitted that the investments were made out of free reserves of the company and not out of borrowed funds. Hence, no disallowance of interest under any sub-rule of 8D(2) can be made. In respect of disallowance under sub-rule 2(iii) of rule 8D, contention of the assessee is that no expenditure was incurred to earn dividend income of Rs. 29,000/-. He placed reliance on the following decisions: i. DCIT vs. Tejas Networks Ltd.(55 Taxman 55)(ITAT, Bang.) and ii. DCIT vs. Subramanya Contracts & Development Co.Ltd. (58 Taxman 219)(ITAT, Bang.) 8. On the other hand, learned Departmental Representative vehemently opposed the submissions of the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, directed the AO to delete the addition of Rs. 75,67,905/- under rule 8D(2)(ii). Therefore, we do not find any reason to interfere with the order of the ld.CIT(A). Hence, the appeal filed by the revenue is dismissed. Assessee's appeal: 10. The only issue is whether any disallowance is called for under rule 8D(2)(iii) or not. The contention of the assessee that no expenditure was incurred to earn dividend income of Rs. 29,000/- was not accepted by the AO. As held by the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT (347 ITR 272) it is not the purpose of the expenditure which is relevant. Once exempt income is earned, it means that some expenditure being incurred in relation to the exempt income which should be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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