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TMI Blog2016 (5) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 42,22,857/- in relation to this is disallowed The finding of the ld. CIT(A) is not rebutted by revenue by placing any contrary materials - ITA No. 122/JP/2015 - - - Dated:- 5-5-2016 - SHRI KUL BHARAT, JM AND SHRI T.R. MEENA, AM. Revenue by : Shri S.K. Jain, DCIT-DR Assessee by : Shri Sanjay Jhanwar and Shri Aditya Vijay ORDER PER KUL BHARAT, JM This appeal of the Revenue is directed against the order of the ld. CIT(A)-1, Jaipur dated 14-11-2014 pertaining to assessment year 2011- 12. The Revenue has raised solitary ground as under:-. 1. Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the disallowance of ₹ 42,22,857/- made by the AO u/s 14A of the I.T. Act, 1961. 2.1 Briefly stated the facts that the case of the assessee was picked up for scrutiny assessment and the assessment was made u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to Act for short) vide order dated 28-02-2014 by the AO. While framing the assessment, the AO invoked the provisions of Rule 8D of the Income-tax Rules, 1962 (hereinafter referred to Rules for short) and thus made disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14A. 3.3 The method for calculating disallowance under this section is prescribe by Rule 8D which reads as under:- Method for determining amount of expenditure in relation to income not includible in total income. 8D. (1) where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with:- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2) (2) the expenditure in relation to income which does not form part of the total income shall be aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income. (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as to why expenditure pertaining to earning of dividend income should not be allowed u/s 14A read with Rule 8D. In response to notice issued appellant submitted its reply alongwith relevant supporting documents. However, AO was not satisfied with the explanation and finally the assessment was completed by making the following disallowance wherein an addition of ₹ 42,22,857/- by disallowance expenses u/s 14A of the I.T. Act 1961, was calculated by applying clause (ii) and clause (iii) of Rule 8D which is as under:- Disallowance as per clause (ii) = ₹ 39,94,217/- Disallowance as per clause (iii) - ₹ 2,28,640/- 3.2.3 On perusal of case record, it is seen that appellant company (NBFC) during the year was engaged in the business of financing and it had incurred interest expenses of ₹ 32,71,73,662/- on loans taken which were utilized for further financing. Its income from operation mainly includes interest income earned from these advances. During the F.Y. relevant to A.Y. 2010-11, appellant company earned total operation income of ₹ 1,36,97,84,029/- Further, appellant has also submitted that during the financial year under app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and finance (P) Ltd. (2013) 25 ITR 683 (Mum.) (Tribunal) - Facts of the case relied upon by AO are clearly distinguishable with this case as Citi Corp Finance Ltd. (supra) pertains to substantial dividend income and Maganlal Chaagan Lal (P) Ltd. (supra) pertains to claim made u/s 80M of the Act. - AO s satisfaction for invoking the provisions of Section 14A is also very cryptic and based on suspicion only. 3.2.5 I find merit and substance in the contention of the appellant that no expenditure had been incurred by the assessee for earning the exempt income on this point because the investment has been made by it its subsidy and not in the shares of any unrelated party. Therefore, the primary object of investment is holding and controlling stake in the group concern and not earning any income out of investment. Further, the investments were made for long term basis for having business control over these subsidiaries. Therefore, in view of the fact that the investment are in the group concern, I do not find any reason to believe that the appellant would have incurred any administrative expenses in holding these investments or disinvestments on regular basis. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42,22,857/- is hereby deleted. Appellant gets relief of ₹ 42,22,857/-. 2.7 The above finding on fact by the Revenue is not controveted by placing any material on record. Moreover, there is no dispute with regard to fact that the assessee has earned exempt income of ₹ 27,006/- against which disallowance of expenditure amounting to ₹ 42,22,857/- was made. The AO has not recorded his satisfaction as to how the expenditure disallowed by the assessee of ₹ 62,878/- towards administrative expenses is not reasonable. Further, we find that the assessee has demonstrated by placing sufficient material on record that no borrowed funds were utilized for making investment and where from the exempt income is earned. In our considered view, the provisions of Section 14A of the Act read with rule 8D of Income-tax Rules, cannot be invoked in mechanical way by the AO . As per Section 14A(2), the AO is required to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act and in accordance with Rule 8D of Income-tax Rules, 1962 if the AO having regard to the accounts, is not satisfied with the correc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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