9911796707
TMI Blog2014 (9) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year 2005-06 and also the interest directly relating to any other taxable income, while computing the disallowance under Rule 8D(2). The same are accordingly upheld on this issue and the appeals of the Revenue are dismissed. Mandation of recording satisfaction - Correctness of the claim of the assessee of having not incurred any expenditure for earning the exempt income - No details were filed by it showing the basis for working out the disallowance at 1-lakh offered under S.14A. A perusal of the assessment order also shows that the issue of other expenses indirectly attributable to the earning of exempt income was not separately discussed by the Assessing Officer and there was no finding given by him on this aspect. Although the learned CIT(A) has observed in his impugned order that dissatisfaction was recorded by the Assessing Officer as regards the correctness of the claim of the assessee of having not incurred any expenditure for earning the exempt income, we find that there is no such finding specifically recorded by the Assessing Officer in the assessment order. As already noted by us, the assessee has also taken contradictory stand on this issue and in the abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed a deduction on account of interest amounting to ₹ 2,19,24,127, ₹ 47,79,539 and ₹ 22,55,897 in assessment years 2008-09, 2009-10 and 2010-11 respectively. The Assessing Officer, therefore, required the assessee company to explain the reasons for not disallowing any expenditure on account of interest as well as other administrative expenses, which might have been incurred for earning exempt dividend income, as required by the provisions of S.14A read with Rule 8D of the Income-tax Rules. In reply, it was submitted on behalf of the assessee company that no expenditure was incurred by it for earning the exempt dividend income. It was submitted that the entire amount of tax free investment was made by the assessee out of its own share capital and reserves and no interest bearing borrowed funds were utilised for making the said investments. It was pointed out that all the tax free investments were made many years ago and since no such fresh investment was made during the subsequent years when the interest bearing funds were borrowed, there was actually no expenditure incurred on account of interest for earning the exempt income. 3. The contention of the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly attributable to particular Receipt is worked out as below: A) Interest expenditure during the year ₹ 22,55,897/- B) The average value of investment is ₹ 74,40,33,738/-. C) The average value fo total assets ₹ 184,71,96,372/- A X BC = 22,55,897 X 74,40,33,738 184,71,96,372 ₹ 9,08,654/- (iii) One-half percent of average value of investment is (₹ 74,40,33,738 X 0.5%) ₹ 37,20,169/- Total Disallowance ₹ 46,28,823/- Less : Disallowed by the assessee ₹ 1,00,000/- Net Disallowance ₹ 45,28,823/- …." 4. The disallowance made by the Assessing Officer under S.14A, computed as above in each of the years under consideration, by applying Rule 8D, was challenged by the assessee in the appeals filed before the learned CIT(A), and the following submissions were made on behalf of the assessee before the learned CIT(A) in support of the stand that the disallowance made by the Assessing Officer under S.14A is not sustainable: "…. (a) The investments have been made out of Share Capital and Reserves and no borrowings have been made for the purpose of investment in shares. Hence there is no interest cost attribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot for making investments by filing copy of sanction letters, board note and board resolutions. (g) As stated earlier the Corporation was not making fresh investments and on the other hand it was reducing the investments. The investments have come down from ₹ 117.12 crores as on 31.03.2006 to ₹ 73.45 crores as on 31.03.2009." 5. After considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) held that dissatisfaction as regards the correctness of the claim of the assessee of having incurred no expenditure for earning exempt income was clearly recoded by the Assessing Officer in the assessment order and therefore, the fundamental requirement to proceed to apply Rule 8D was duly satisfied by the Assessing Officer. He, therefore, overruled the preliminary objection raised by the assessee as regards the application of Rule 8D by the Assessing Officer to compute the disallowance to be made under S.14A. The learned CIT(A) however found merit in the contention raised on behalf of the assessee that no fresh tax free investment having been made by it after the financial year 2005-06, no interest paid on the loans taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f allowed by him to the assessee. We, therefore, find no justifiable reason to interfere with the impugned orders of the learned CIT(A) in directing the Assessing Officer not to consider the interest paid by the assessee on the loans borrowed after the financial year 2005-06 and also the interest directly relating to any other taxable income, while computing the disallowance under Rule 8D(2). The same are accordingly upheld on this issue and the appeals of the Revenue are dismissed. Assessee'Appeals: 8. In its appeals, the solitary common issue raised by the assessee company is regarding disallowance made by the Assessing Officer under S.14A as per Rule 8D(2)(iii), which has been confirmed by the learned CIT(A). In this regard, it is observed that the method for determining the amount of expenditure in relation to income not includible in total income for the purpose of S.14A is prescribed in Rule 8D, which is applicable from assessment year 2008-09. As per the said Rule, the amount of expenditure directly relatable to the earning of exempt income is to be taken as per clause (i) of Sub-rule (2) of Rule 8D, while expenditure indirectly incurred by way of interest and other heads ..... X X X X Extracts X X X X X X X X Extracts X X X X
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