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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 ..... e 8D(2)(iii) but the amount of disallowance should be restricted to the dividend income. - ITA No.1429/Bang/2014, ITA No.1565Bang/2014 - - - Dated:- 24-2-2016 - SHRI VIJAYPAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Assessee : Shri H.V.Gowthama, CA. For The Revenue : Shri T.N.Prakash, Addl.CIT ORDER Per INTURI RAMA RAO, AM : These cross appeals by the revenue as well as the assessee are directed against the order of the ld.CIT(A)-I, Bangalore, dated 25/8/2014 for the assessment year 2010-11. 2. The assessee raised the following grounds of appeal in its appeal bearing ITA No.1429/Bang/2014: 1) The Learned Commissioner of Income Tax erred in confirming the addition of 0.5% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and on law, the Ld.CIT(A) erred in restricting the disallowance of expenses considering the investments being made out of interest free funds, when the nexus between the interest expenditure incurred for earning the exempt income was not established during the assessment proceedings, which attracted the applicability of provision of Sec. 14A read with Rule 81D. 3) For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 4) The appellant craves for permission to add, modify or delete the grounds of appeal mentioned above at the time of hearing the case with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest subject to disallowance 16,830 Total 22,13,68,681 The AO inferred that the amount of ₹ 15,85,72,947/- interest incurred on working capital and other...should be treated as interest and subjected to disallowance u/s 14A read with rule 8D(2)(ii) apart from disallowance of ₹ 5,25,381/- and thus made a total disallowance of ₹ 80,93,286/-. 6. Being aggrieved by the assessment order, an appeal was preferred before the CIT(A) who, vide impugned order dated25/08/2014 deleted the addition made under the provisions of sec.14A read with rule 8D(2) in respect of ₹ 75,67,905/- by holding as follows: 3.4 I have considered the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.6 From the chart given above, the appellant having noninterest bearing fund of ₹ 46,41,38,387 as on 31.03.2010 and ₹ 43,49,04,713 as on 31.03.2009 thus it could be presumed that investment of ₹ 28,76,32,516 was made out of the interest free funds. Therefore, no interest attributable in making exempt investment hence not disallowable. Further, it was observed that investment appears as on 31.03.2009 for ₹ 28,76,32,516 and the same investments appears as on 31.03.2010 it shows that no new investments were made during the previous year relevant to A.Y. under consideration. 3.7 Further, the appellant pleaded that disallowance should be restricted to ₹ 29,000 being earned dividend income during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred to earn dividend income cannot be accepted. Aggrieved by the deletion of addition of ₹ 75,67,905/- u/s 14A r.w.rule 8D(2)(ii), revenue is in appeal before us in ITA No.1565/Bang/2014 and the assessee-company is contesting the finding of the CIT(A) confirming the addition of ₹ 5,25,381/- under the provisions of rule 8D(2)(iii). 7. Before us, learned AR of the assessee submitted that during the previous year relevant to assessment year under consideration, no fresh investments were made. All the investments are carried forward from the earlier years. He had filed a chart, from perusal of which clearly shows that no fresh investments were made during the year under consideration. He further submitted that the assessee-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is established between investments and pre-reserve, disallowance has to be confirmed. As regards applicability of rule 8D(2)(iii), the contention of the learned Departmental Representative is that no dividend income was earned without incurring any expenditure and therefore, he submitted that the working adopted by the AO should be adopted. 9. We have heard rival submissions and perused material on record. The only issue in the appeal filed by the revenue is that whether the ld.CIT(A) was justified in deleting addition of ₹ 75,67,905/- under the provisions of rule 8D(2)(ii) of the Act. The ld. CIT(A) deleted the addition after considering the fact that reserves and surplus are more than investments in the year in which investments ..... X X X X Extracts X X X X X X X X Extracts X X X X
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