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TMI Blog2022 (3) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment and expenditure debited in books of account and mechanically applied Rule 8D without recording any satisfaction which is evident from the assessment order and succinctly made disallowance of expenditure of interest under Rule 8D(2) and under Rule 8D(2)(iii). CIT(A), after calling the remand report and considering the material available on record, restricted the amount of disallowance of exempt income, however, has not specifically dealt with assessee's argument how interest cost can be apportioned when assessee has used its own funds for making the investment. It is well settled proposition that if assessee has own funds which is higher than the investment for earning tax free income then presumption is drawn that all the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) i.e. by taking 0.5% of average value of investments of ₹ 5,55,19,967/- on which dividend was received. However, AO without recording any satisfaction has proceeded to make disallowance of ₹ 2,99,83,789/- and after reducing the amount of ₹ 2,77,600/- had disallowed by the assessee made addition of ₹ 2,97,06,189/- under Rule 8D(2) on account of disallowance of interest. 4. Before the ld. CIT(A), assessee submitted that it had huge surplus funds in the form of capital and surplus profits and, therefore, no disallowance of interest expenditure can be made. The relevant submissions of the assessee before the ld. CIT(A) are as under:- GROUND No. 2(a), (b), (c) (d) 1. Only those investments to be considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered for computing average value of investments which yielded exempt income during the year. In other words, the contention of the assessee stands fully APPROVED by the decision of the Special Bench of ITAT Delhi. Therefore, in the light of the decision of the Special Bench of Delhi ITAT, the working of disallowance u/r. 8D(2)(ii)/(iii) is required to be recomputed in the light of recent judgment of Delhi ITAT Special Bench decision and other judicial pronouncements referred to above. There are various no of judgments wherein it has been held that only those investments have to be considered which have actually yielded tax free income during the year;- i) ACB India vs. ACIT [2015] 374 ITR 108 (Delhi); ii) Chem In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/r. 8D(2)(ii) on common interest was called for as the assessee's own funds exceeded the investments which yielded tax free income as under:- As on 31.03.2016 Rs.Crore 104.70 Shareholders' funds Total Investments Shares (Quoted Unquoted) : 6.08 Mutual Fund (Quoted Unquoted) : 15.00 Investments in Partnership : 73.76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Tribunal in assessee's own case in ITA No. 71/Del/2018 in AY 2014-15 vide order dated 14.10.2020 has deleted the similar disallowance made u/s. 14A on account of interest expenditure under Rule 8D(2)(iii) on the ground that assessee has surplus fund for making the investment. In this year also, he submitted that the assessee had shareholders fund of more than ₹ 104.70 crores and the investment made by the assessee was of ₹ 94.48 crores wherein the investment in partnership was ₹ 73.76 crores, thus on shares and mutual fund, there was only investment of ₹ 21 crores. Thus, no disallowance u/s. 14A can be made on account of interest expenditure in view of the decision of the Tribunal in assessee's own cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt income, however, has not specifically dealt with assessee's argument how interest cost can be apportioned when assessee has used its own funds for making the investment. It is well settled proposition that if assessee has own funds which is higher than the investment for earning tax free income then presumption is drawn that all the investments in the tax free earning income has been made out of assessee's own fund. This proposition has now been approved by Hon'ble Supreme Court in the case of South Indian Bank Ltd. vs. CIT 2021 TIOL 236-SC-IT. Accordingly, no disallowance of interest can be made and the same is directed to be deleted. Moreover, we find that in the earlier year also, similar finding has been given by the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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