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TMI Blog2016 (6) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... f average investment and also computed the interest expenses in the face of the undisputed facts that assessee has not borrowed any funds for the purpose of investment in shares during the year under assessment. Admittedly, when the AO and ld. CIT (A) have not disputed the books of account as well as tax audit report and computation of income which apparently proved the contention of the assessee that no dividend income has been received during the year under assessment nor it has borrowed any funds to invest in the share to earn the dividend income, the question of making disallowance by invoking provisions u/s 14A read with Rule 8D does not arise. Thus when the assessee company has not incurred any expenditure to earn the exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out in accordance with the provisions of Rule 8D. 4. The learned Commissioner of Income Tax (Appeal) erred in invoking the provisions of Section 14A of the Income Tax act, 1961 read with Rule 8D of the Income Tax Rules, 1962, since the assessee has not earned dividend income during the year under assessment which has been claimed as exempt u/s 10(34) of the I.T. Act, 1961. 2. Briefly stated the facts of this case are : in response to the notice issued under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short 'the Act') along with questionnaire issued during the scrutiny proceedings, Shri Anil Srivastava, FCA/AR put in appearance from time to time and filed requisite details, which have been test checked. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Rule 8D of the Rules are not applicable. 6. During the appellate proceedings, the assessee company was called upon to file copy of annual accounts, tax audit report, computation of income and copy of acknowledgement for filing the return of income qua the year under assessment, which it has filed along with following reply :- It may be relevant to mention that the assessee company is an investment and finance company and is engaged in the business of trading in shares and borrowing and lending of money. During the year under assessment, the assessee company has not borrowed any money which have been invested in shares all which dividend has been received by the assessee company. In fact no dividend has been received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the appellant company has received dividend income during immediately preceding year as well as in the next assessment year succeeding the year under consideration. The perusal of balance sheet of the appellant company shows that it is the holding company and shares of its subsidiary company are held by it on which dividend is received on regular basis. For managing these investments direct expenses in the shape of demat charges are paid by the appellant company on annual basis. Besides that the company is having common pool of financial resources since beginning, and from such common hotch-pot, investment in the shares of subsidiary companies have been made from which the exempt income in the shape of dividend is received by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee company has received dividend income during the immediately preceding assessment year as well as the next assessment year i.e. 2009-10; two : that assessee company is the holding company and share of its subsidiary companies are held by it on which dividend is received on regular basis; and third : that for managing these investments, direct expenses in the share of demat charges are paid by the assessee company on annual basis and as such, the portion of financial expenses claimed by assessee company is attributable to the exempt income. 11. Identical issue has come up for consideration before the Hon ble jurisdictional High Court in case cited as Cheminvest Ltd. vs. CIT - (2015) 378 ITR 33 (Delhi) wherein it is held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port and computation of income which apparently proved the contention of the assessee that no dividend income has been received during the year under assessment nor it has borrowed any funds to invest in the share to earn the dividend income, the question of making disallowance by invoking provisions u/s 14A read with Rule 8D does not arise. 15. So, in view of what has been discussed above, when the assessee company has not incurred any expenditure to earn the exempt income, no disallowance can be made u/s 14A of the Act read with Rule 8D of the Rules, hence the impugned order passed by the ld. CIT (A) is not sustainable in the eyes of law. Consequently, present appeal filed by the assessee is hereby allowed. Order pronounced in open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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