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TMI Blog2020 (2) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order in the set aside proceedings has sustained a partial disallowance made by the A.O. U/s 36(1)(iii) as well as U/s 14A of the Act, therefore, both the revenue as well as the assessee have filed these cross appeals and raised following grounds: Grounds of revenue's appeal: "1. Whether on the facts and circumstances of the case and in law, the ld CIT(A) was justified in restricting the disallowance from Rs. 2,76,51,752/- to Rs. 16,51,186/- made by A.O. u/s 14A of I.T. Act, 1961? 2. Whether on the facts and circumstances of the case and in law, the ld CIT(A) was justified in restricting the disallowance from Rs. 4,52,338/- to Rs. 49,197/- made by A.O. u/s 36(1)(iii)?" Grounds of assessee's appeal: "1. In the facts and circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the addition to the extent of Rs. 49,197/- made by the ld AO u/s 36(i)(iii) of the Income Tax Act, 1961. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting entire such addition, made by ld. AO, sustained by ld. CIT(A). 2. In the facts and circumstances of the case and in law, ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r making the investment during the F.Y. 2007-08. He has further contended that the assessee was having Rs. 145 crores as its own fund as against the investment of Rs. 60.20 crores in the mutual funds, therefore, the assessee was having enough surplus fund and hence no disallowance is called for on account of interest expenditure U/s 14A of the Act. He has further contended that even during the set aside proceedings, the A.O. has not given a finding that the assessee was not having its own sufficient fund but the A.O. has just repeated the observation as made in the assessment order without giving the findings on the facts of the availability of own funds. Therefore, the ld AR has submitted that the addition sustained by the ld. CIT(A) may be deleted. 4. On the other hand, the ld DR has submitted that the assessee has not produced relevant record to show that the assessee's own fund was used for the purpose of investment in mutual funds. He has referred to the assessment order as well as the remand report and submitted that the A.O. has specifically stated that the assessee has failed to produce the evidence to establish the link that the assessee's own fund was invested in mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred by the assessee have to be attributed towards earning this income. Therefore, the contention of the assessee that no other expenditure was incurred by it against the exempt income holds no ground as it is squarely covered by the provisions of sec 14A(3) wherein it is clearly stated that the provisions of sub-section (2) (which made reference to Rule 8D for calculating disallowance u/s 14A) shall apply. Even if, for once, the contention of the assessee that no other expenditure was incurred by it against the exempt income was accepted to be true, still this would hold no ground as it is squarely covered by the provisions of sec 14A(3) wherein, it is dearly stated that the provisions of sub section (2) (which make reference to Rule 8D for calculating disallowance u/s 14A shall apply even to a case where an assessee claims no expenditure against the exempt income. The Finance Act, 2001, which has, introduced a new Section 14A with retrospective effect from 01.04.1962, clarifies that no deduction shall be allowed to the assessee in respect of the expenditure incurred by the assessee in relation to income, which does net form part of total income. The administrative and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cannot be more than the exempt income. The Hon'ble Delhi High Court in the case of Cheminvest Ltd. V. Commissioner of Income-tax-IV 378 ITR 33 has held that if there is no exempt income earned by the assessee during the year, no disallowance can be made on account of administrative expenditure, therefore, we find that the disallowance restricted by the ld. CIT(A) to the extent of exempt income is proper and justified." The ld. CIT(A) has also followed the order of the Tribunal while restricting the disallowance U/s 14A read with Rule 8D(2)(iii) of the Rules and hence we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue. Consequently, ground No. 1 of the revenue's appeal and ground No. 2 of the assessee's appeal stand dismissed. 8. Ground No. 2 of the revenue's appeal and ground No. 1 of the assessee's appeal is regarding disallowance made by the A.O. U/s 36(1)(iii) of the Act on account of interest expenditure in respect of OD account. The A.O. made total disallowance of Rs. 4,52,338/- by applying interest @ 10% on the total over draft amount of Rs. 45,23,383/-. The ld. CIT(A) after considering the remand report of the A.O., restricted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the actual expenditure incurred by the assessee in respect of OD account is only Rs. 49,197/-. The said finding of the ld. CIT(A) is reproduced as under: "(vii) I have duly considered the submissions of the appellant, assessment order and the material placed on record. The appellant has provided detailed chart regarding debit and credit entries in various bank accounts. The appellant also submitted the date wise chart of investment made in mutual funds. As per summary provided, the appellant has received business receipts of Rs. 64,78,14,595/, the redemption of mutual funds to Rs. 2,41,04,98,908/, maturity of fixed deposits Rs. 31,31,07,444/-, share capital Rs. 25,00,00,000/-. In other words, the appellant has claimed to receive total funds of Rs. 3,62,14,20,947/-. Against the above funds, the investment in mutual funds during the year was to the extent of Rs. 1,90,40,72,698/-. Thus, the appellant has claimed that whole of the investment in mutual funds was from business receipts. However, no specific clarification was filed on the observation of the AO that investment in mutual funds has resulted in debit balance in overdraft account. Therefore, it is held that the debi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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