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TMI Blog2020 (11) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance u/s 14A - several judicial precedents relied upon before us also held so - AO has failed to record any satisfaction with respect to the correctness of claim of the assessee of not incurring any expenditure to earn exempt income , on examination of the account, the disallowance made by the AO and disallowance restricted by the ld CIT(A) cannot be upheld Interest paid to the bank u/s 36(1)(iii) - assessee has given loans and advances to various sister concern and other parties on which interest has not been charged - HELD THAT:- In the present case the assessee has interest free funds available in the form of share capital and free reserve amounting to 37.05 crores whereas interest free loans and advances were only 17.32 crores. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the appellant. 1.1 That the C1T(A) erred on facts and in law in upholding the action of the assessing officer in computing disallowance by invoking provisions of Rule 8D of the Income Tax Rules, 1962 ("the Rules‟), without appreciating that conditions precedent for applying provisions of the said Rule, including recording of satisfaction, were not satisfied. 1.2 That the CIT(A) failed to appreciate that since the appellant was engaged in the business of trading in shares and securities, there was no warrant to make any further disallowance under section 14A of the Act. 1.3 Without prejudice, that the CIT(A)/ assessing officer erred on facts and in law in computing disallowance under section 14A of the Act out of interest ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A)/ assessing officer erred on facts and in law in disallowing interest expenditure twice inasmuch as the same was considered while computing disallowance under section 14A of the Act r.w.s Rule 8D of the Rules and was again disallowed alleging diversion of borrowed funds to sister concerns." 3. Brief facts of the case shows that the assessee is a member of National Stock Exchange and Bombay Stock Exchange and is engaged in trading of shares and securities. For the impugned AY , assessee filed its return of income on 30.09.2011 at ₹ 26266200/- which was assessed u/s 143(3) of the Act by the ld DCIT, Circle-13(1), New Delhi (ld AO) at ₹ 30643130/- vide order dated 13.03.2014. The assessee preferred an appeal before the ld CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned of ₹ 173455/ following the decision of the Hon'ble Delhi High Court in case of Joint Investment Pvt. Ltd Vs. CIT. The assessee is aggrieved with that. 5. The ld AR submitted that the ld AO has not recorded the satisfaction to the correctness of the claim of the assessee that no expenditure has been incurred to earn any exempt income and further suo motto disallowance offered of ₹ 50,000/ is how incorrect , without doing so, the ld AO could not have jumped to apply Rule 8D. He submitted that satisfaction is sine quo none before invoking Rule 8D. He further submitted that when the shares are held as stock in trade, provisions of section 14A does not apply. Alternatively, he also submitted that investments on which no exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts is the primary conditions to invoke any disallowance u/s 14A of the Act. The several judicial precedents relied upon before us also held so. In view of this, as the ld AO has failed to record any satisfaction with respect to the correctness of claim of the assessee of not incurring any expenditure to earn exempt income , on examination of the account, the disallowance made by the ld AO and disallowance restricted by the ld CIT(A) cannot be upheld. Accordingly, we direct the ld AO to delete the above disallowances of ₹ 173455/- u/s 14A of the Act. Thus, ground No. 1 of the appeal is allowed. 8. Ground no. 2 is with respect to disallowances of interest expenditure of ₹ 2677324/-. The ld AO noted that the assessee has giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and stated that the major interest expenditure of ₹ 24.36 lakhs is for working capital need for the business of the assessee. Even otherwise he submitted that the assessee has earned interest income of ₹ 4385941/- and expenditure is for RS 2677324/- therefore, it has offered net interest income for taxation. It was also stated that majority of the loans were advanced in earlier years and not during the year. He further submitted that as on 31.01.2011 the assessee has interest free funds in share capital and reserves amounting to ₹ 37.05 crores whereas the loans and advances given interest free is only of ₹ 17.32 crores and therefore, presumption arises in favour of the assessee that interest free funds are used for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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