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TMI Blog2017 (1) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 11.29 Crores. ITA/4948/Mum/2016: 2. Effective ground of appeal is about confirming the disallowance of Rs. 33.48 Crores u/s.14 A read with Rule 8D of the Income Tax Rules,1962(Rules).During the assessment proceedings, the AO found that assessee had made investment in shares in mutual funds to the tune of Rs. 3,56,02,88,582/-as on 31/03/2012, that it had received exempt income in form of dividend of Rs. 1.12 Crores,that it had on its own disallowed interest cost of Rs. 16.94 lakhs,that it had debited interest on Pass Through Certificate(PTC) of Rs. 21.95 Crores and premium PTC of Rs. 13.89 Crores as expenses in the income and expenditure account,that in working of disallowance u/s.14A it adopted total interest expenditure at Rs. 21.95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrowing amounted to Rs. 35.84 Crores, that the AO had held that premium paid on borrowings were also of the nature of interest,that the assessee had not controverted the said argument of the assessee, that the main issue to be decided was as to whether the provisions of section 14A of the Act would apply to the case even where tax-free dividend income was earned on investments held as stock in trade. Referring to the cases of the Damani Estates and Finance Private Ltd.(41taxmann.com. 462) and D.H.Securities Private Ltd.(41 taxmann. com.352),he held that the purpose for which the investments were purchased and held would not in any manner impact the applicability of section 14A,that the provisions of the section would get attracted on incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on other expenses, that out of the said expenditure it had already considered for disallowance of the payment of trusteeship fees,that the administrative expenditure incurred on audit fees had nothing to do with earning of exempt income,that the disallowance under rule 8D(2) (iii) had to be restricted to Rs. 1,323/-.Finally, he deleted the balance disallowance. 4. During the course of hearing before us,the Authorised Representative (AR) argued that the assessee was dealing in shares and securities,that it was a trader and not an investor, that no disallowance u/s.14A could be made in case of a trader under the head interest expenditure, that except for the year under consideration the AO had allowed the interest expenditure for every year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of India Advantage Securities Ltd.(supra),the Hon'ble jurisdictional High Court has held that disallowance of expenses can be made which are incurred for earning dividend. For that purpose,the figures under the head Investment could be taken and some charges apportioned for the purpose of computing the expenses.The AO,except for the year under appeal,has allowed the interest expenditure for earlier and subsequent years.He has not given any reasons for deviating from the stand taken in earlier years.Considering the above,we hold that there was no justification in disallowing the interest expenses by the AO/FAA as the assessee was dealing in shares-it was not an investor.Reversing the order of the FAA,we decide first effective gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was incurred by the assessee for earning dividend income no disallowance should be made.In our opinion,the order of the FAA does not suffer from any legal or factual infirmity.It has been held by the various courts that in absence of incurring of expenses by an assessee to earn exempt income no disallow ance can be made.Thus,incurring of expenses is a pre-condition for 14A disallowance.In the case under appeal,the FAA had rightly excluded two items of expenditure out of the three items related to exempt income and confirmed one of the expenses. Therefore, in our opinion his order does not suffer from any legal infirmityConfirming his order,we decide the effective ground of appeal against the AO. As a result,appeal of the assessee stands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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