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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 ..... vestments into securities earning tax free income and the rest applicability of the Section 14A read with Rule 8D would be automatic. - Decided against revenue - R/Tax Appeal No. 1065 of 2018, 1066 of 2018, 1067 of 2018 And 1068 of 2018 - - - Dated:- 27-8-2018 - Mr. Justice Akil Kureshi And Mr. Justice B.N. Karia For the Petitioner(s) : Mr.Varun K. Patel For the Respondent(s) : Mr B S Soparkar ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These appeals filed by the Revenue involve the same assessee. Facts are similar. We may record them from Tax Appeal No.1065 of 2018. 2. This appeal is filed by the Revenue to challenge the judgment of the Incometax Appellate Tribunal dated 17.11.2017. Following questions are presented for our consideration : (a) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in not upholding the disallowance u/s.14A of the Income Tax Act made by the Assessing Officer ? (b) Whether on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in not upholding the disallowance u/s.14A of the Income Tax Act made by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire tax free income yielding activities were carried out by deploying own or surplus funds. He further observed that the tax free income earning activities and taxable income earning activities are both carried out using the common kitty of funds, it would be reasonable to apportion the interest burden between the two activities . 6. The assessee carried the matter in appeal. The CIT (Appeals) gave partial relief to the assessee. To the extent corelation of interest free funds being used for investments yielding tax free income could be established, he spared the assessee the disallownace. For the rest, he approved the view of the Assessing Officer. 7. The assessee carried the matter in further appeal. The Tribunal by the impugned judgment deleted the entire disallowance. The Tribunal referred to the earlier judgment in case of the assessee itself and borrowed the discussion in such judgment, in which it was observed that, it is a settled position that Assessing Officer has to record a specific satisfaction before resorting to disallowance under Section 14A read with Rule 8D to the effect that disallowance offered by the assessee is inadequate to cover the expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such income which does not form part of the total income in accordance with the method as may be prescribed, if having regard to the accounts of the assessee he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The method for such purpose has been prescribed under Rule 8D of the Rules. Sub-rule (1) of Rule 8D substantially reiterates what sub-section (2) of Section 14A provides. Essentially under sub-rule (1), the Assessing Officer would be authorized to determine the expenditure to be disallowed in relation to earning tax free income in terms of sub-rule (2) where having regard to the accounts of the assessee of the previous year he is not satisfied with the correctness of the claim of expenditure made by the assessee or the claim made by the assessee is that no expenditure has been incurred in relation to income which does not form part of total income. 11. In case of S. A. Builders Ltd., vs. Commissioner of IncomeTax (Appeals), reported in (2007) 288 ITR page1 (SC) the Supreme Court considered an issue where the Revenue desired to disallow an assessee s claim of expenditure of interest on borrowed capital which was lent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in case of S A Builders Limited Vs. Commissioner of Income Tax (Appeals), Chandigarh reported in 288 ITR 1 , disallowance under section 14A would not be permissible. We do not find that the Tribunal has committed any error. 14. As pointed out by the counsel for the assessee Punjab Haryana High Court in case of M/s. Max India Ltd., in a judgment dated 8.3.2017 considered a similar issue as under : 6. With regard to the second issue regarding expenditure related to exempt income, the same is covered by the decision of this Court in the case of the assessee in Commissioner of Income Tax, Jalandhar I, Jalandhar vs. M/s Max India Limited, ITA No.186 of 2013, decided on 6.9.2016, wherein after considering the relevant case law on the point, the issue was decided in favour of the assessee and it was recorded thus: 9. This presumption is unfounded. Merely because the interest free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease the assessee has interest free funds sufficient to make the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as attained finality between the parties. Not only that, but the Department has followed the same in the subsequent assessment years also. Considering the aforesaid facts and circumstances, it cannot be said that the Tribunal has committed any error in deleting the disallowance made by the Assessing Officer under Section 14A of the Act. Therefore, the two Tax Appeals No.900/2018 and 901/2018 stands dismissed so far as the proposed question No.2 (a) is concerned. 16. The primary question which the Supreme Court considered in case of Maxopp Investment Ltd., (Supra) was whether disallowance of expenditure under Section 14A of the Act would be applicable in a case where shares or stocks of a company were purchased for the purpose of gaining control over the said company and incidentally tax free dividend income was generated. The assessee had contended that the dominant intention for purchasing the shares was not for earning the dividend but to gain control over the business in the company in which the shares were purchased. The Supreme Court held that the purpose for which the shares were purchased was inconsequential. As long as such investment generated tax free income, disal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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