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TMI Blog2018 (12) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer and in deleting the disallowance even under Rule 8D(2)(iii) without considering that in any case, this disallowance was not dependent on whether investments were made out of interest free funds ? 3. The issue pertains to assessment year 2010-11. Respondent assessee is a registered company and is engaged in the business of manufacturing glass ware items, machinery and equipments for chemical glass and other industries and also in real estate development. During the assessment proceedings the Assessing Officer noticed that the assessee had earned dividend income of Rs. 1.24 crores (rounded off) which was claimed as exempt income under Section 10(34) of the Income Act, 1961 (for short 'the Act'). The assessee had on its own added back an amount of Rs. 1 lac as disallowance under Section 14A of the Act towards administrative expenses incurred for earning such exempt income. 4. The Assessing Officer was not satisfied with this working out presented by the assessee. He therefore issued a notice why disallowance should not be made under Section 14A read with Rule 8D of the Income Tax Rules, 1961 ('the Rules' for short). The assessee replied to such notice conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax exempt income. Resorting to the method prescribed under Rule 8D is not automatic. 8. Before us, counsel for the Revenue contended that the view adopted by the Tribunal is incorrect. Present was the case where the assessee had mixed funds i.e. interest bearing as well as interest free funds. The assessee could not establish the corelation between the funds received from such sources and the investment thereof. Under the circumstances, the Assessing Officer was perfectly justified in applying the formula contained in Rule 8D which is made precisely for such purpose. While agreeing that in case of assessee itself in earlier year, this Court had ruled against the Revenue, counsel submitted that since then the judgment of the Hon'ble Supreme Court in case of Maxopp Investment Ltd., vs. Commissioner of Income Tax, reported in (2018) 402 ITR 640 has been rendered altering the situation materially. Our attention was drawn to para 42 of the said judgment. 9. On the other hand, learned counsel Shri Soparkar for the Revenue opposed the appeal contending that application of Rule 8D is not automatic. Unless and until the Assessing Officer records his satisfaction that accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest. The Supreme Court interpreted the term "for the purpose of the business" used in Section 36(1)(iii) of the Act in such context. The Supreme Court approved the decision of the Delhi High Court in case of CIT vs. Dalmia Cement (B) Ltd., reported in (2002) 254 ITR 377 and observed that once it is established that there was nexus between the expenditure and the purpose of business which need not necessarily be the business of the assessee itself, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the rule to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The transfer of borrowed funds to a sister concern has to be seen from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. 12. The exposition of law made by the Supreme Court in case of S. A. Builders and observation made therein have been applied by this court on various occasions, particularly in connection with the disallowance to be made under Section 14A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such funds that were utilized for the said investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by investing interest free funds towards other assets merely on account of the interest free funds having decreased. In that event so long as even after the decrease thereof there are sufficient interest free funds the presumption that they would be first used to invest in assets yielding exempt income applies with equal force." Learned counsel for the appellantrevenue has not been able to distinguish the aforesaid decision taken by this Court." 15.Division Bench of this Court in case of Gujarat State Fertilizer and Chemicals Ltd., in a judgment dated 31.7.2018 followed the earlier judgment in case of the assessee and observed as under :" 16. Considering the aforesaid findings and decision of the Division Bench of this Court of the very assessee for the Assessment Year : 20042005, the Division Bench of this Court in the case of the very assessee has set aside /deleted the similar disallowance made by the Assessing Officer under Section 14A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case. However, it is true that while disposing of bunch of appeals by the said judgment the Supreme Court also considered the correctness of the view of the Punjab & Haryana High Court in case of Avon Cycles Ltd. It was the case in which the Assessing Officer had invoked Section 14A read with Rule 8D and apportion the expenditure between investments made for earning tax free income and the rest. The CIT (Appeals) had deleted the entire disallowance upon which in the appeal filed by the Revenue the Tribunal restored portion of the disallowance observing that the funds utilized by the assessee being mixed funds, the disallowance is confirmed in view of the provisions under Rule 8D(2) of the Rules. This decision of the Tribunal was challenged before the High Court. The Court held that the funds utilized by the assessee were mixed funds and the interest paid by the assessee is also an interest on the investments made, was the finding of fact and therefore, no substantial question of law arises. This judgment was carried in appeal by the assessee. The Supreme Court dismissed the appeal confirming the decision of the High Court. 17. We do not find that this portion of the ..... 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