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TMI Blog2016 (11) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest expenditure of ₹ 7,03,118/-. The AO merely hold that the working of the disallowance is not as per Rule 8D, and the same was upheld by Ld. CIT(A). With the above observation, we hold that the disallowance u/s 14A should be restricted to Rs. ₹ 7,03,118/- plus ₹ 65000/- on account of administrative expenses as per Rule 8D2(iii). For AY 2012-13 assessee has surplus interest free fund of ₹ 10.10 crore and made investment of ₹ 5.56 crore during the year. On specific queries, the AR of the assessee submitted that the assessee has incurred corresponding interest expenditure of ₹ 1,95,668/-. We have further seen that the fact of this appeal are at little variance to the earlier year. In the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brief facts related to the disposal of the present appeals are that the assesseecompany is engaged in the business of investing in properties. For AY 2011-12, the assessee filed its return of income on 24th September 2011. In the return of income, assessee claimed exempt income of ₹ 3,40,617/-. The assessee has not apportioned any expenditure toward earning such exempt income. The return of income was selected for scrutiny and while framing assessment, the AO asked the assessee as to why appropriate disallowance should not be made u/s. 14A of the Income Tax Act as per Rule 8D. The assessee filed revised computation of income and offered ₹ 7,03,118/- for disallowance u/s. 14A of the Act. The working of disallowance of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration, the assessee invested in mutual fund and earned exempt income of ₹ 3,40,617/-, the income was by way of dividend on the unit of mutual fund. The assessee borrowed funds from M/s Saraswat Bank for the purpose of investing in business, repayment of unsecured loan and for working capital. The assessee had invested the excess funds from time to time in mutual fund to save cost when the funds were temporarily not utilized. The assessee suo-moto disallowed interest expenditure of ₹ 7,03,118/- which was incurred to earn exempt income. The AR of the assessee further argued that details of computation of disallowance were provided to the AO. The Rule 8D can only be invoked, if the AO is not satisfy with the correctne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile framing the assessment order simply observed that working of disallowance submitted by assessee is not as per Rule 8D not satisfied in respect of working is recorded. Ld. CIT(A) while considering the ground of disallowance concluded that assessee made the huge investment of ₹ 2,61,25,979/-. The assessee incurred finance cost of ₹ 2,49,37,929/- in the year. The AO finally concluded that the apportionment is required to be made in terms of section 14A r.w.r 8D which is mandatory from AY 2008-09. The Ld. CIT(A) has also not examined the pre-conditions for applicability of Rule 8D. The AO as well as the ld CIT(A) failed to record the correctness of the claim of the assessee in respect of expenditure incurred in relation to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). With the above observation, we hold that the disallowance u/s 14A should be restricted to Rs. ₹ 7,03,118/- plus ₹ 65000/- on account of administrative expenses as per Rule 8D2(iii). In the result the appeal of the assessee for AY 2011-12 is allowed. 4. For AY 2012-13, the Ld. AR of the assessee argued that assessee earned dividend income of ₹ 98,450/-. The assessee has not made any voluntary disallowance as they have not claimed deduction for the expenses incurred by assessee, thus, the disallowance u/s 14A were not possible. The AO disallowed a sum of ₹ 43,50,194/- u/s 14A of the Act, while framing assessment and the same was sustained in first appeal. The Ld. DR for Revenue argued that during the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that the fact of this appeal are at little variance to the earlier year. In the earlier year, the assessee voluntarily made the disallowance of ₹ 7,03,118/-, however, in the year under consideration, no voluntary disallowance was made. It has come on record that assessee earned dividend income on units of mutual fund. The assessee invested the borrowed fund for the investment in the mutual fund in earlier years, thus, the assessee must incurred interest on the borrowed fund. On our specific queries, the assessee submitted the corresponding interest expenditure incurred for earning the exempt income and the such interest is worked out at ₹ 1,96,668/-. Accordingly, the AO is directed to restrict the disallowance u/s of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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