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TMI Blog2017 (5) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... the two different assessees arise against the two separate orders dated 30/11/2016 passed by the ld. CIT(A), Bikaner for the A.Y. 2013-14. 2. Both the appeals of the assessees are being heard together and for the sake of convenience and brevity, a common order is being. 3. Firstly we take ITA No. 135/Jodh/2017. In this appeal, the assessee has taken following grounds of appeal: 1. That the ld. CIT(A) was not justified in upholding applicability of Section 14(2) r.w.s. 8D on the facts and circumstances of the case. 2. That the ld. CIT(A) was not justified in treating the investments in business partnership firms to have income of two types one is taxable and the other which is exempt even after accepting that investment in partnership firm was for the purpose of carrying on business by the partner however assessee had claimed that all income whether interest, remuneration and share of profit derived by the partner/s were by virtue of the investments made therein. 3. That the CIT(A) failed in giving clear direction for excluding investment of ₹ 3,75,00,000/- made in shares yielding no taxable income out of total investment of ₹ 4,42,52,726/- whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee investments of ₹ 3,75,00000/- in Shares out of total investments of ₹ 4,42,52726/-were from interest-free funds loans/deposits of similar amounts in addition to assessee s own capital of ₹ 5135397. The ld. CIT(A) had found AO s calculation of disallowance to be not correct and directed the AO to work out as per Rule 8D of the Rules. 5. The main grievance of the assessee is upholding of applicability of Section 14(2) r.w.r. 8D by the ld. CIT(A). 6. Before the ld. CIT(A) has contested the disallowance of ₹ 6,60,458/- U/s 14A r.w.r. 8D. The assessee s written submissions before the ld. CIT(A) is as under:- In rebuttal appellant contends that deduction for interest payment of889805 against income derived from partnership firms was rightly claimed because income from the firm per se is not exempt U/s 10(2A) but share of profit from the firm alone is made exempt U/s 10(2A). Prior to the amendment, whole income of the firm - divisible profit, remuneration interest to partners was taxed in the hands of the firm but after new provisions share of profit was made exempt U/s 10(2A) and Interest A Remuneration of partner was made liable to tax as In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Rudraksh Art Craft (where appellant is partner) therefore excess withdrawals were available to be used in other investments in M/s Venkteshwera and/or M/s Souryagarh Palace. Apart from this, there was appellant's own capital of ₹ 5135397 also. In the light of these facts there was no justification for holding interest payments to exempt income investments. Reference is made to CIT Vs Walfort Share Stock Brokers (P) Ltd. (2010) 192 Taxman 211 (SC) though given in context of Section 14A, it was held that there should be proximate cause for disallowance by proving its relationship with exempt income tax. Reference is also made to some case laws: CIT Vs Radico Khaitan Ltd. (AIL)- (2005) 142 Taxman 681- Where Tribunal had recorded a finding that there was sufficient funds other than borrowed funds available with the assessee in the form of share capital, share .Implication money, reserves surpluses for diverting a particular sum to its sister concern, it would not be said that the loan advanced to sister concern came out of borrowed moneys. Contending firmly that application of Section 14(2) Rule 8D(2) would have no application by assuming exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icability of sec. 14A because as mentioned above, the payment of interest has brought two incomes to the assessee one of which is exempt. So, part of the interest expenditure is attributable to earning of exempt income and the provision of sec. 14A requires the Assessing Officer to make a disallowance of the expenditure which is attributable to earning of exempt income. In view of these, I hold that the Assessing Officer was justified in invoking the provision of sec. 14A which overrides all other provisions relating to deductions. However, for the reasons given below, I find that the calculation of disallowance done by the Assessing Officer on this account is not correct and disallowance needs to be recalculated. Alternatively, it was also contended that the entire calculation is made without any basis and without considering the provision of Act. In the written submission also, the appellant submitted that the Assessing Officer had to adopt following method to calculate the amount of disallowance:- i) Whole amount of expenditure if it is directly relating to exempt income which is not applicable in present case); ii) In case of expenditure of interest whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jot thereafter disallowance of ₹ 660458/- on the basis of working as per Rule 8D of Section 14(2) was not justified. It was also brought on record that in addition to investments in said partnership firms there were other investments like shares, Agricultural lands and equipments made out of interest bearing loans/deposits because the assessee s own capital was not sufficient to meet them all. In regard to investment in shares for ₹ 3,75,00,000/- out of total investments of ₹ 44252726 pointed out in assessment order there were interest free loans/deposits of ₹ 29500000 from Hissaria Art Craft and ₹ 8000000 from Sunita Mine Chemand also therefore remaining investments as given below were left to be considered for deductibility of interest payments. 1. ₹ 4172338 M/s Venkteshwara where assessee is a partner 2. ₹ 3830372 M/s Souryagarh Palace where assessee is partner 3. ₹ 1371855 Agricultural Lands Equipment Details of investment reveal that there were excess withdrawals of ₹ 2157101 and ₹ 464738 from M/s Behari Lai Lila Sons M/s Rudraksh Art Craft, therefore excess withdrawals were available t ..... 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