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TMI Blog2020 (12) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... r the normal provisions of the Income Tax Act, 1961 and negative Book Profit of Rs. 241,53,84,240/- under section 115JB of the Income Tax Act, 1961. In the said return, dividend income of Rs. 4,31,280/- received during the year under consideration was claimed to be exempt by the assessee-company. No disallowance on account of expenses incurred in relation to the earning of the said exempt income, however, was offered by the assessee as required by the provisions of section 14A of the Act. In this regard, the following explanation was offered by the assessee during the course of assessment proceedings before the Assessing Officer:- "During the financial year the company has received the dividend from two companies namely: Name of the Company Amount Glass Equipment (India) Limited 2,64,000/- The Calcutta Stock Exchange Association Limited 1,67,280/- No expenditure to be incurred in relation to earn of such tax free income. According to Bombay High Court a disallowance u/s. 134A may however be made on some fair and reasonable basis. The Supreme Court in the case of CIT-vs.-Walfort Share & Stock Brokers Pvt. Limited 326 ITR 1 has held that before making disallowance u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation between the expenditure claimed by the assessee and the dividend received from other companies. He also observed that the investment decisions were very complex in nature and the same required substantial market research, day-to-day analysis and market trends. He also observed that the investment required capital, which had cost represented by interest. He relied on the CBDT's Circular No. 5/2015 dated 11.02.2014, wherein it was clarified that disallowance under section 14A is applicable even though there is no exempt income actually earned by the assessee during the relevant year on the corresponding investment. The Assessing Officer, therefore, applied Rule 8D and worked out the disallowance to be made under section 14A on account of expenses incurred by the assessee in relation to the exempt income at Rs. 10,72,47,695/- as under:- (a) Total investment value as on 31.03.2014 1447286000 Total investment value as on 31.03.2013 1808923000 Average investment 1628104500 Without considering Government Securities Beneficial interest in shares held in Trust and investment in HNG Global GmbH (b) Total assets as on 31.03.2014 3973 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In this regard, he relied on the decision of the Hon'ble Calcutta High Court in the case of REI Agro Limited-vs.-DCIT reported in 144 ITD 141, wherein it was held that the disallowance under section 14A read with Rule 8D(2)(iii) is required to be computed and restricted only to the investment that actually yielded the exempt dividend income to the assessee during the relevant year. He also noted that his predecessor in assessee's own case for assessment year 2012-13 vide its appellate order dated 24.11.2017 had directed the Assessing Officer to restrict the disallowance under section 14A read with Rule 8D(2)(iii) only to the dividend earning investment. The ld. CIT(Appeals) accordingly directed the Assessing Officer to restrict the disallowance under section 14A read with Rule 8D(2)(iii) to Rs. 4,31,280/- being the dividend income actually earned by the assessee during the year under consideration. The ld. CIT(Appeals) thus restricted the disallowance of Rs. 10,72,47,695/- made by the Assessing Officer under section 14A of the Act read with Rule 8D to Rs. 4,31,280/-. 6. Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2013-14 to the tune of Rs. 766.39 crores were sufficient to make the corresponding investment of Rs. 71.38 crores, there was a presumption that the said investment was entirely made by the assessee out of its own interest-free funds and no interest bearing borrowed funds were utilized for making such investment. In support of this contention, the ld. Counsel for the assessee relied on the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Limited reported in 313 ITR 340 as well as in the case of CIT-vs.-HDFC Bank Limited reported in 383 ITR 529. 9. As regards the relief allowed by the ld. CIT(Appeals) by restricting the disallowance made by the Assessing Officer under section 14A on account of common administrative expenses by applying Rule 8D(2)(iii) to the extent of exempt dividend income actually earned by the assessee during the year under consideration, the ld. Counsel for the assessee contended that this issue is squarely covered by the decision of the Hon'ble Delhi High Court in the case of Joint Investment Pvt. Limited vs. CIT reported in 372 ITR 694, wherein it was held that the disallowance under section 14A cannot exceed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made from the interest-free funds available with the assessee and not from the interest bearing borrowed funds so as to warrant disallowance under section 14A. This decision rendered in the case of Reliance Utilities & Power Limited (supra) was subsequently followed by the Hon'ble Bombay High Court in the case of HDFC Bank Limited (supra) to hold that where both interest-free funds and interest bearing funds are available and the interest-free funds are more than the investments made, the presumption is that the investment in the tax-free securities would have been made out of the interest-free funds available with the assessee. Since the interest-free funds of its own available with the assessee-company in the form of share capital and free reserves available with the assessee-company during the year under consideration were substantially more than the corresponding investments made as found by the ld. CIT(Appeals), we are of the view that the disallowance made by the Assessing Officer on account of interest under section 14A read with Rule 8D(2)(ii) was rightly deleted by the ld. CIT(Appeals) by relying, inter alia, on the decision of the Hon'ble Bombay High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee company as on 31.03.2013. On perusal of Balance sheet, we noticed that own funds of the assessee company is Rs. 1,15,771/- lakhs, which is more than the investments in shares and securities to the tune of Rs. 18,089/- lakhs. Since Company's net owned funds in the form of equity capital and free reserves were substantially more than the cost of share investment, yielding dividend income, no part of the interest paid is disallowable because borrowed funds were not used for acquiring shares. For that we rely on the judgment of the Hon'ble Calcutta High Court decision in the case of CIT vs. HDFC Bank Ltd. [49 taxmann.com 335). Therefore, the disallowance under Rule 8D(2)(ii) read with Section 14A is not attracted in assessee's case hence we direct the Assessing Officer to delete the disallowance under Rule 8D(2)(ii) of the IT Rules". 13. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Ys. 2012-13 and 2013-14, we respectfully follow the decision of the Coordinate Bench of this Tribunal rendered for A.Ys. 2012-13 and 2013-14 by following the ratio of the decisions of the Hon'ble Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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