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TMI Blog2019 (7) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... t payments under section 14A of the Act can be made. In light of the above factual and legal position, we are of the view that disallowance of interest under rule 8D(2)(ii) cannot be sustained and the same is directed to be deleted. Disallowance under rule 8D(2)(iii) - We have considered the expenditure debited in the profit loss account and we find that only bank charges of ₹ 35,676/-, remuneration to auditors of ₹ 8500/-, salary and wages of ₹ 2,46,000, travelling and conveyance of ₹ 60,000/-, vehicle maintenance of ₹ 1,81,816- are expenses which are general in nature and all other expenses are attributable to the activities other than activity of investment in shares which are likely to yield exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals is with regard to disallowance made by the AO of the expenses incurred in earning income which does not form part of the total income under Chapter III of the Income-tax Act,1961 ['the Act' for short] in accordance with provisions of section 14A of the Act r.w. rule 8(D)(2)(ii) and 8D(2)(iii) of the Income Tax Rules. 1962 ( the Rules for short). 3. The assessee is a company engaged in the business of manufacturing and trading in electronic goods. In the course of assessment proceedings u/s 143(3) of the Act, the AO noticed that the assessee had claimed exemption in respect of dividend income from shares and mutual funds u/s 10(34) of the Act of a sum of ₹ 84,83,798/-. The AO also noticed that in the Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Aggrieved by the aforesaid order, the assessee preferred an appeal before the CIT(A). The CIT(A) upheld the order of the AO in principle. But held that expenditure that should be disallowed u/s 14A of the Act cannot exceed the exempt income and accordingly directed the AO to restrict the addition u/s 14A of the Act to the extent of exempt income earned by the assessee during the previous year. 7. Aggrieved by the order of the CIT(A) confirming the addition made u/s 14A of the Act to the extent of exempt income earned by the assessee, the assessee has preferred the present appeal before the Tribunal. Aggrieved by the order of the CIT(A) in not sustaining the addition made by the AO, Revenue p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere only ₹ 23,27,03,595/-. Perusal of the chart annexed to this order would also show that investments and dividend yielding shares have come down from 31/3/2008 and investments in non-yielding instruments have remained same from 31/3/2008. It can therefore be safely presumed that the assessee had own surplus funds which were more than investments in dividend yielding shares. The law by now is well-settled that if available interest-free funds are much more than investments in dividend yielding shares, then there can be no disallowance under rule 8D(2)(ii) of the Act. In the case of CIT Vs. HDFC Bank Ltd. [2014] 49 taxmann.com 335 (Bombay) it was held where assessee's own funds and other non interest bearing funds were more than i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 14A of the Act is that the expenditure incurred in relation to income which does not, form part of total income has to be determined having regard to the account of the assessee. Therefore, nexus between expenses sought to be disallowed and earning of dividend income has to be seen before applying the provisions of rule 8D of the IT Rules. In that view of the matter, we direct that disallowance of expenses should be restricted to the items as set out above. 9. As far as appeal of the revenue is concerned, there is no merit in the appeal because the law, by now is well settled that disallowance u/s 14A of the Act cannot exceed exempt income earned by the assessee. 10. In the result, the appeal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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