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TMI Blog2017 (9) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... n these circumstances, the ld. CIT (A) has rightly deleted the addition as the entire investment made by the assessee for earning exempt income was out of free funds available with it. Even otherwise, Rule 8D section 14A is effective from AY 2008-09. So, we find no illegality or perversity in the findings returned by ld. CIT (A) for AY 2001-02. In AY 2006-07 CIT (A) restricted the addition of ₹ 1,91,93,084/- to ₹ 70,69,155/- made by the AO in mechanical manner. As in view of the law laid down by the Hon’ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. (supra) when the assessee has interest free reserves to the tune of ₹ 35,32,74,483/- and disallowance made by the AO is not proved to be expenses incurred for the purpose of earning dividend income as the entire investment has been made out of interest free funds available with the assessee, no ground is made out to interfere into the findings returned by ld. CIT (A) to that extent.- Decided in favor of assessee. - ITA No.5732/Del./2014, ITA No.5734/Del./2014, CO No.142/Del./2017 And ITA No.5734/Del./2014 - - - Dated:- 31-8-2017 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving finding that no addition is required u/s 14A disregarding the fact that in the original assessment the assessee had itself suo-moto made disallowance u/s 14A? 6. Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has ignored the fact that the denovo assessment framed by the Assessing Officer was in respect of the issue setaside by the Hon'ble ITAT emanating from the grounds of Revenue Appeal before the Hon'ble ITAT and no order adverse to the revenue is justified in supersession of the earlier order of the CIT(A) by considering the issue in the light of an altogether new averment of the assessee? 7. Whether on the facts and circumstances of the case in law, the Ld. CIT(A) has erred in ignoring the fact that the source of investment is not a relevant factor even in the method of determining disallowance under Rule 8D after its insertion subsequently. Therefore, the same cannot be take into account for calculating disallowance u/s 14A for pre rule 80D period. Thus the view taken by the CIT-(A) is against the legislative intent? 8. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts and in law in not deleting the entire additional disallowance of interest expenditure of ₹ 1,91,93,084 made by the assessing officer under section 14A the Income Tax Act, 1961 ('the Act') and restricting the same to ₹ 70,69,155. 1.1 That the CIT(A) erred in not appreciating that disallowance under section 14A of the Act was to be computed by only considering only those investments, which yielded exempt dividend income during the relevant year. 1.2 Without prejudice, the CIT(A) erred on facts and in law in not restricting the disallowance made under section 14A to the extent of Rs. ₹ 3,53,657, being the exempt income earned by the assessee. 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : in case of Assessment Year 2001-02, during the scrutiny proceedings, Assessing Officer noticed that the assessee has claimed exempt income of ₹ 2,58,11,056/- on account of dividend on shares on certain listed companies. AO further noticed that the assessee has only disallowed an amount of ₹ 26,37,780/- in return but claimed interest expenses in P L account of borrowed fund to the tune of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 24.12.2009 was passed which was challenged before the ld. CIT (A) who has partly allowed the appeal filed by the assessee vide order dated 28.07.2014. Now, the Revenue is in appeal before the Tribunal in AYs 2001-02 and 2006-07. Simultaneously, the assessee has also filed the cross objections in AY 2006-07. 9. From the grounds of appeal, arguments addressed by ld. Authorized Representatives of the parties to the appeal and facts circumstances of the case, the sole issue arises for determination in this case is :- as to whether ld. CIT (A) has erred in deleting the disallowance of ₹ 90,32,506/- made by the AO in de novo assessment after direction of the Tribunal in AY 2001-02 and erred in restricting the addition to ₹ 70,69,155/- in AY 2006-07 whereas the assessee has itself disallowed a sum of ₹ 28,18,144/- u/s 14A of the Act in its return. 10. Ld. DR for the Revenue challenging the impugned order contended inter alia that the ld. CIT (A) has accepted the submissions made by the assessee at the back of the AO; that an apportionment of funds shown at page 5 of the impugned order are illogical; that in Schedule VI of the balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount as on 31.03.2001 (in Rs.) Total own funds 34,44,42,623 Share Capital 21,25,26,000 Reserves and Surplus 13,19,16,623 Total borrowed funds 24,12,04,766 Secured loans (excluding interest) 20,00,00,000 Unsecured loans (excluding interest) 4,12,04,766 Total investments 33,65,81,747 Total investments yielding exempt income during the year (for the purposes of making disallowance under section 14A) 9,04,03,525 Max India Limited 8,99,76,279 Nestle India Limited 10,580 Ranbaxy Laboratories Limited 4,16,566 13. Hon ble Supreme Court in case of M/s. Godrej Boyce Manufacturing Co. Ltd. vs. DCIT Anr. (2017) 394 ITR 449 (SC) affirmed the decision of Hon ble Bombay High Court in Godrej Boyce Manufacturing Company Ltd. by explaining the procedure for calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that in case of mispool of funds, presumption must have been drawn in favour of the assessee and filed cross objection against the part addition sustained by ld. CIT (A). No doubt, by invoking theory of presumption, no addition can be made. When the assessee has earned dividend income to the tune of ₹ 3,53,643/- only by investing an amount of ₹ 88,00,00,000/- it needs to be worked out as to whether dividend income has been earned by the assessee from the investment made out of tax free fund as contended by ld. AR for the assessee or from the borrowed fund. 16. No doubt, assessee has invested an amount of ₹ 88,00,00,000/- which is much more than the tax free fund available with the assessee which are to the tune of ₹ 35,00,00,000/-. But this fact needs to be examined in the light of the fact that in the earlier year, the assessee was having tax free fund to the tune of ₹ 34,00,00,000/- and in the year under assessment, the assessee was having interest free fund to the tune of ₹ 35,00,00,000/-. To arrive at the exact calculations, it needs to be worked out as to whether the investment to earn the dividend income was old investment or it was ..... 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