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TMI Blog2020 (11) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 crores only and remaining balance was out of accrued profit of the firm which needs to be excluded while computing average value of investments. This aspect needs verification from the AO because the facts are not clear as the Assessing Officer stated that investments in partnership firm is at ₹ 7.35 crores, whereas the assessee claimed investment in partnership firm is ₹ 1.5 crores. As regards investments in mutual funds we have given our thoughtful consideration to arguments of the assessee in light of provisions of section 14A - what is to be considered in exempt income in form of dividend received by an assessee, but not capital gain derived on transfer of such investments to decide applicability of disallowances of expenditure. If dividend from mutual fund is exempt from tax, then certainly expenditure relatable to such exempt income needs to be disallowed. In this case, there is no clarity whether any exempt income is received from such investments from mutual funds. Receipt of exempt income is a precondition for including investments in average value of investments, because investments which do not generate exempt income for the year cannot be included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The Commissioner of Income tax (Appeals) ought to have appreciated that investments in mutual funds were out of own funds and in fact profit for the year was more than the investments made in mutual funds and hence no part of the interest can be disallowed under Section 14A. 7 . The Commissioner of Income tax (Appeals) ought to have appreciated that as the Appellant had not spent any amount for receiving income from the firm or mutual fund and hence there can be no disallowance of expenditure for earning the exempted income . 3. Brief facts of the case are that the assessee company is carrying business of suppliers of specialized scientific laboratory equipments filed its return of income for the assessment year 2012- 13 on 28.09.2012 declaring total income of ₹ 12,34,51,680/-. The case was selected for scrutiny and during the course of assessment proceedings, it was noticed that the assessee has earned exempt income from units to the tune of ₹ 22,43,917/-, however, not made any disallowance towards expenses relatable to exempt income, therefore called upon the assessee to file necessary details of exempt income including expenses incurred in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding the decision of ITAT., Chandigarh Bench in the case of ACIT Vs.Anil Kumar Singhania (2014) 51 ITR 98) observed that there is no error in the findings recorded by the Assessing Officer to disallow the interest expenditure under the 2nd limb of Rule 8D on pro rata basis because from assessment year 2008-09 onwards disallowance u/s.14A needs to be computed in accordance with prescribed formula provided under Rule 8D of I.T.Rules, 1962, whether or not the assessee is having interest free funds. Similarly, as regards disallowance under 3rd limb of Rule 8D, the learned CIT(A) observed that when the assessee is having common expenses, it cannot be ruled out the possibilities that certain portion of expenditure would have been incurred for the purpose of investments which yield exempt income, accordingly rejected the arguments of the assessee and confirmed the addition made by the Assessing Officer. Aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 5. The learned AR for the assessee submitted that the CIT(A) has erred in confirming interest disallowance under 8D(2)(ii) of I.T.Rules, 1962, despite the fact that the assessee is having sufficient o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made an argument in light of investments in the partnership firm in the year 2008 and further stated that initial investment at ₹ 1.50 crores only to be taken for computing average value of investments. Similarly as regards investments in mutual funds, it was the contention of the assessee that when gain from transfer of mutual fund is taxable under the head capital gains even though dividend is exempt from tax, those investments should be excluded from the purview of average value of investments . We find that the Assessing Officer has taken value of investments in partnership firm as on 31.03.2012 on the basis of amount disclosed in the financial statements, whereas the assessee claimed that original investment was at ₹ 1.5 crores only and remaining balance was out of accrued profit of the firm which needs to be excluded while computing average value of investments. This aspect needs verification from the Assessing Officer because the facts are not clear as the Assessing Officer stated that investments in partnership firm is at ₹ 7.35 crores, whereas the assessee claimed investment in partnership firm is ₹ 1.5 crores. Similarly, as regards investments i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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