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TMI Blog2017 (8) TMI 1616X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiaries for commercial expediency, the question of disallowance under Rule 8D does not arise - also not in dispute that the income derived by the assessee company from the investment made in its subsidiary is otherwise taxable. When assessee has not utilized any borrowed fund for investment nor made any interest payment nor earned any dividend, there is no question of making disallowance by the AO u/s 14A read with Rule 8D of the Rules. CIT (A), by considering all these facts, has rightly deleted the addition.- Decided against Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... n rendered by ITAT, Special Bench, New Delhi in case of M/s. Cheminvest Ltd. ITA No.87/Del/2008 computed the disallowance as per Rule 8D as under :- S.No. Particulars Amount One half% of Average value of investment income from which does not form part of total income Investment as on 01.04.2010 1,268,845,297 Investment as on 31.03.2011 2,694,761,539 3,963,606,836 Average value of investments (3,963,606,836/2 1,981,803,418 One half % of Average value of investment (1,981,803,418 x 0.5%) = 99,09,017/- DISALLOWACNE AS PER RULE 8D 3. AO on the basis of his own computation worked out the disallowance at ₹ 99,09,017/- and made addition thereof to the total income of the assessee company. 4. Assessee carried the matter by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 449 (SC). 8. Undisputedly, the AO, without recording dis-satisfaction, as the working out made by the assessee that no expenses have been incurred nor earned any dividend income, proceeded to invoke the provisions contained u/s 14A read with Rule 8D in a mechanical manner which is not permissible. 9. Hon'ble Delhi High Court in judgment cited as Maxopp Investment Ltd. (supra) while deciding the identical issue held as under :- "Section 14A even prior to the introduction of subsections (2) and (3) would require the Assessing Officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment." 10. Hon'ble Apex Court in Godrej & Boyce Manufacture Company Ltd. vs. DCIT - 394 ITR 449 (SC) thrashed the issue in controversy as to invoking of the provisions contained under Rule 8D of the Rules by observing as under :- "37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Act, which can only be invoked if the AO is not satisfied with the claim of the assessee. 11. Ld. CIT (A) has thrashed the issue in controversy in detail by observing as under :- "4.2 It is seen that AO has mechanically applied Rule 8D to make the above disallowance u/s 14A without examining the correctness of the claim of the assessee that no expenditures are incurred in relation to the exempt income having with regard to the accounts of the assessee. From the balance sheet, it is evident that total investment as on 31.03.2010 was ₹ 120,71,56,297/- which has gone up to ₹ 269,47,61,539/- as on 31.03.2011. The entire investments are in long term unquoted non trade investments in subsidiary companies. Out of the above i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot incurred any interest cost for earning exempt income but this plea of the assessee has also been brushed aside by the AO without recording any reason of dis-satisfaction. Even otherwise, when it is admitted fact that the assessee has not incurred any interest expenses during the year under assessment and it was having ample cost free funds to invest in its subsidiaries for commercial expediency, the question of disallowance under Rule 8D does not arise. Moreover, it is also not in dispute that the income derived by the assessee company from the investment made in its subsidiary is otherwise taxable. When assessee has not utilized any borrowed fund for investment nor made any interest payment nor earned any dividend, there is no question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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