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TMI Blog2019 (10) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the assessing officer to adopt higher amounts in opening (Rs. 2,03,65,24,000) and closing (Rs. 1,83,76,42,000) value of investments as against Rs. 1,42,14,82,760 and Rs. 1,21,83,26,320 respectively considered by the assessing officer while calculating disallowance under section 14A read with rule 8D(iii) of the Income tax Rules, 1962. 3. The learned CIT(A) has also erred in giving direction to the assessing officer to include the value of units and shares held as stock in trade for the purpose of determining average investments while calculating disallowance under section 14A read with rule 8D(iii) of the Income tax Rules, 1962. 4. The learned CIT(A) erred in not appreciating that only actual expenditure that is relatable to earning income can be considered for disallowance and not notional expenditure. 5. The learned CIT(A) erred in not appreciating that the method adopted by the appellant was scientific, systemic and reasonable for determining the expenses attributable for earning the exempt income. 6. The learned CIT(A) erred in directing the assessing officer to rework the book profits under section 115JB of the Act by adopting a higher amount of disallowance unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -09 & 2009-10, wherein the grounds of appeal was restored to the file of Assessing Officer. The ld. AR of the assessee prayed that similar order may be passed for the year under consideration. 5. On the other hand, the ld. DR for the revenue after going through the orders of Tribunal in A.Ys 2008-09, 2009-10 & 2012-13 fairly agreed that the issue may be restored to the file of Assessing Officer. 6. We have considered the rival submissions of the partied and have gone through the orders of the lower authorities. We have seen that on identical grounds of appeal the coordinate bench of tribunal in assessee's own case for AY 2012-13 by following the order of AY 2008-09 and 2009-10 passed the following order: "5. We have carefully heard the rival submission and perused relevant material on record. At the outset, we find it convenient to extract the operative portion of the judgment of this Tribunal rendered in assessee's own case for AYs 2008-09 & 2009-10 as follows:- 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. We begin with the contentions of the Ld. counsel that the AO has not recorded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de letter dated 15.10.2010 relied upon notes to computation of income wherein it is stated that it had made investment out of its own funds, that no specific borrowings have been made for such purpose and that no substantial expenses have been incurred for such activities. Having examined the submission of the assessee, the AO noted that in the return of income, while computing the taxable income, the assessee has reduced the income arising on account of capital gains and dividends from the head 'Profits and Gains from Business or Profession', as reflected in the P&L account and offered them for tax separately at the required rates. For this purpose, the long term capital gains and dividends have been claimed as exempt and concessional rate of the taxes has been applied in respect of short term capital gains. The assessee has claimed entire expenditure incurred from the company as a whole against the remaining first three heads of income as mentioned above. Then the AO observed "An important issue which arises is that where four activities are being carried out by the assessee and expenses are incurred in respect of all activities together, whether the expenses relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue in as much as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to Section 14A of the Act." In view of the above position of law, we delete the disallowance of Rs. 1,02,810/- made by the AO under Rule 8D(2)(ii). 7.2 We now turn to the disallowance of Rs. 48,97,979/- made by the AO under Rule 8D(2)(i) and Rs. 73,36,360/- made under Rule 8D(2)(iii). We find merit in the submissions of the Ld. counsel that the expenses allocable to TIG Department are considered by the AO as direct expenditure under Rule 8D(2)(i), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it would follow that section 14A has within it implicit notion of apportionment. The principle of apportionment which prior to the amendment of section 14A would not have applied to expenditure incurred in a composite and indivisible business which results in taxable and non-taxable income, must, after the enactment of the provisions, apply even to such a situation. The expression 'expenditure incurred' in section 14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for." Also in the same judgment their Lordships explained Rule 8D as under: "In the affidavit-in-reply that had been filed on behalf of the revenue, an Explanation has been provided of the rationale underlying rule 8D. It had been stated with reference to rule 8D(2)(ii) that it would be difficult to allocate the actual quantum of borrowed funds that have been used for making tax-free investments. It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken excluding any expenditure by way of interest which is directly attributable to any particular income or receipt (for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is conceivable in respect of investment made in the shares of domestic companies and not foreign companies. As the above details were not examined either by the AO or the Ld. CIT(A), we restore the matter to the file of the AO to make a fresh order on disallowance under Rule 8D(2)(iii) only, after examining the shares of the appellant in the foreign company vis-a-vis its taxability and allowing the same for the purpose of working out the average investment. We direct the appellant to file the details of shares in foreign company before the AO. Needless to say, the AO would give a reasonable opportunity of being heard to the appellant before finalizing the order. Also the AO is directed to allow the benefit of Rs. 28,19,646/- suo motu disallowed by the appellant. 7.4 In view of the above, the grounds of appeal in respect of disallowance under Rule 8D(2)(i) and Rule 8D(2)(iii) are allowed, whereas, the appeal under Rule 8D(2)(iii) is allowed for statistical purposes. We find that similar facts and circumstances exist in the impugned AY except for the fact the no disallowance u/r 8D(2)(ii) has been made by the lower authorities. It is further noted that Hon'ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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