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TMI Blog2017 (12) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... of the exempt income even despite agreeing with the assessee company that no satisfaction has been recorded by the AO that nil expenses has been incurred to earn tax free dividend income rather proceeded to sustain the addition of ₹ 68,433/- on the basis of surmises and guesswork which is not sustainable. In the given circumstances, the contentions raised by ld. DR are not sustainable. Appeal filed by the Revenue challenging to restrict the disallowance u/s 14A read with Rule 8D from ₹ 43,67,640/- to ₹ 68,433/- is dismissed being without merit. - ITA No.969/Del./2016 And CO No.167/Del/2016 - - - Dated:- 7-12-2017 - SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The ASSESSEE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 16.12.2015 passed by the CIT (Appeals)-I, Gurgaon for the assessment year 2011-12 on the grounds inter alia that :- 1. That on facts and in the circumstances of the case, the ld. CIT (A) has erred in confirming the disallowance to the extent of ₹ 68,433/- under section 14A read with Rule 8D of the Income Tax Act, 1961. 2. That the Ld. CIT (A0 has failed to correctly appreciate the provisions of section 14A of the Income Tax Act, 1961. 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessing Officer made disallowance of ₹ 43,67,640/- by invoking the provisions contained under section 14A of the Income-tax Act, 1961 (for short the Act ) read with Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the AO, after duly recording his dissatisfaction, which is apparent from assessment order itself, worked out the disallowance under Rule 8D as per accounts rendered by the assessee company; that section 114 of the Evidence Act, 1872 raises presumption in favour of the Revenue that there was non-satisfaction of the AO and relied upon the order of the AO. 9. Ld. AR for the assessee company to repel the arguments addressed by the ld. DR for the Revenue contended inter alia that AO proceeded to invoke the provisions contained u/s 14A read with Rule 8D without recording his satisfaction; that the assessee company has not incurred any expenses to earn the dividend income from investment of mutual funds; that the assessee company has substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that investments, if made, were made out of interest free funds available with the assessee company. 12. Hon ble High Court of Bombay in case cited as CIT-2, Mumbai vs. HDFC Bank Ltd. (2014) 49 taxmann.com 335 (Bombay) while dealing with the identical issue held that when the assessee s own funds and other non-interest bearing funds were more than investment in tax free securities, no disallowance on account of interest payment under section 14A can be made. 13. Furthermore, the AO has not recorded his dissatisfaction as to the computation made by the assessee company that no expenditure has been made by the assessee company during the year under assessment to earn the interest free income rather proceeded mecha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee by returning the following findings :- 39. Turning now to the order of the ITAT in para 33, it recorded the submission of the AR that the AO did 1)0t record any satisfaction about the Assessee not properly offering expenditure incurred in relation to the exempt income at ₹ 3 lakhs. The ITAT reproduced the contents of para 3.3.1 of the assessment order, which has been extracted by this Court hereinbefore, which contains general observations regarding earning of exempt income. This cannot be accepted as a recording by the AO of satisfaction regarding the claim of the Assessee after examining its accounts. Again, in para 34 of its order, the ITAT simply reproduced para 3.3.6 of the assessment order where, again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has substantial pool of share capital, reserves and surplus and no amount out of interest bearing funds have been invested to earn the exempt income. 17. The AO has not pointed out any defect in the computation made by the assessee company and as such, provisions contained u/s 14A read with Rule 8D are not attracted. Because sub-section (2) (3) of section 14A with Rule 8D of the Rules has only prescribed a formula for determination of an expenditure to earn the income which does not form part of the total income under the Act, which can only be invoked if the AO is not satisfied with the claim of the assessee. 18. Furthermore, CIT (A) erred in sustaining the disallowance of ₹ 68,433/- by restricting the same to 10% of the exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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