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TMI Blog2018 (8) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... of specific disallowance of interest u/s 14A read with rule 8D is and could have occurred for the first time in the year in question and there can be no presumption that the AO accepted in the preceding year that no interest bearing funds were utilized by the assessee in making the investments in respect of opening balance of investments, so as to disable him from making disallowance of interest under rule 8D, even if it is proved that interest bearing funds were utilized for the purpose. Ergo, this contention of the ld. AR is jettisoned. It is, therefore, directed that the Assessing Officer will examine the question of disallowance of interest under Rule 8D(2)(ii) in the above hue and compute the same after allowing opportunity of being he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and portfolio management services. The assessee received exempt dividend income of ₹ 3,38,62,672/-. In the absence of any disallowance offered u/s 14A of the Act, the Assessing Officer required the assessee to show cause as to why disallowance be not made. The assessee tendered some explanation. Not satisfied with the assessee s point of view, the Assessing Officer invoked the provisions of Rule 8D and computed disallowance at ₹ 9,12,39,472/- comprising of two parts, namely, disallowance of interest expenditure amounting to ₹ 8,53,28,239/- under Rule 8D(2)(ii) and disallowance of other expenses under Rule 8D(2)(iii) @ % of the average value of investments. The ld. CIT(A) echoed the disallowance, against which the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Delhi High Court in ACB India Ltd. vs. CIT (2015) 374 ITR 108 (Del) , has held that the average value of investments, for the purposes of Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments. Similar view has been taken by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. (2017) 165 ITD 27 (Del) (SB) holding that only those investments should be considered for computing average value of investments which yield exempt income during the year. In view of the afore referred binding precedents, we set aside the impugned order to this extent and remit the matter to the file of Assessing Officer for re-computing the disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r were also out of borrowed interest bearing funds. This was countered by the ld. AR contending that interest of ₹ 9.51 crore was paid in respect of borrowed funds which were not utilized for the purposes of investments in the current as well as the preceding year. It was further submitted that though the assessee made fresh investment of ₹ 291.12 crore during the year, at the same time, it also sold investments of ₹ 344.87 crore during the relevant period. The ld. DR strongly supported the impugned order on this score by putting forth that interest paid by the assessee during the year was in respect of interest bearing funds utilized for the purposes of investment in such securities and hence the disallowance of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of interest should be made in respect of the securities purchased during the preceding years. He relied on the judgment of the Hon'ble Karnataka High Court in CIT vs. Sridev Enterprises (1991) 192 ITR 165 (Kar.) and certain other decisions canvassing the proposition that if the assessee s claim in the previous assessment years regarding interest on borrowed capital has been accepted, the Revenue cannot make disallowance of interest in the succeeding years on the opening balance of such investments. He further relied on the judgment of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. vs. DCIT (2016) 383 ITR 529 (Bom) for the proposition that the parameters for allowing interest u/s 36(1)(iii) apply in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om making disallowance of interest under rule 8D, even if it is proved that interest bearing funds were utilized for the purpose. Ergo, this contention of the ld. AR is jettisoned. It is, therefore, directed that the Assessing Officer will examine the question of disallowance of interest under Rule 8D(2)(ii) in the above hue and compute the same after allowing opportunity of being heard to the assessee. 11. It is noticed that the assessee earned exempt dividend income of ₹ 3,38,62,672/-. The Hon'ble jurisdictional High Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) and CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC has held that if there is no exempt income, there can be no question of making any disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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