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TMI Blog2019 (7) TMI 1945X X X X Extracts X X X X X X X X Extracts X X X X ..... g grounds of appeal :- 1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in directing the AO to recalculate the addition made on account of disallowance u/s. 14A of the Income Tax Act, 1961 by applying the amended provisions of Rule 8D(2)(ii) (@ 1% of the annual average of monthly average of the opening and closing balances of the value of investments, whereas the same amendment was introduced w.e.f. 02.06.2016 and does not have retrospective effect? 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition on account of disallowance u/s. 36(l)(iii) of the Income Tax Act? 3. That the order of the Ld. CIT (A) be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. The Assessing Officer noticed that the assessee during the year had made huge investments and had also earned substantial tax exempt income. However, the assessee had suo motu disallowed a sum of Rs. 1 lac on account of expenditure relatable to earning of tax exempt income u/s 14A of the Act. On being asked to explain in this respect, the assessee pleaded that assessee was having sufficient own / interest free funds to meet the investment, hence, neither any disallowance u/s 14A was warranted nor u/s 36(1)(iii) of the Income Tax Act, 1961. 5. The Ld. Assessing Officer, however, did not get satisfied with the above submissions of the assessee and computed the disallowance u/s 14A of the Act as per the formula prescribed under Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of tax exempt income and further an amount equal to 1% of the annual average of monthly averages of opening and closing balances of the value of investment was to be taken. He noted that there was no direct expenditure incurred by the assessee in relation to the investments, income from which was tax exempt. He, accordingly directed the Assessing Officer to make the disallowance u/s 14A @ 1% of the average value of investment as prescribed under the substituted Rules w.e.f. 2.6.2016. So far as the disallowance of expenditure made by the Assessing Officer under section 36(1)(iii) of the Act was concerned, the Ld. CIT(A) noted that the assessee had sufficient interest free funds to cover the investment. He, therefore, relying upon the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free funds to meet the investment in question. The Ld. Counsel for the assessee has also placed reliance in this respect on a chart produced before us to show that the total investment as on 31.3.2013 were at Rs. 13487.26 lacs, whereas, the total investment as on 31.3.2012 were at Rs. 8874.21 lacs and there was a net increase in the investments of the amount to Rs. 4613.05 lacs. The assessee had share capital, reserve and surpluses of Rs. 41328 lacs as on 31.3.2013 as against of Rs. 39353 lacs as on 31.3.2012. Apart from that, the total interest paid during the year was Rs. 26.88 lacs, whereas, the assessee during the year received interest of Rs. 708.72 lacs and, therefore, the net interest received during the year was of Rs. 681. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en held that the amended rule 8D of the I.T. Rules is applicable prospectively. 11. So far as the disallowance of administrative expenditure incurred for making the investment is concerned, we find that assessee during the year had made investment in four companies. The rest of the investments were old investments. There is no churning of the portfolios or to say repetitive investments. The assessee suo motu has disallowed a sum of Rs. 1 lacs in this respect. The Assessing Officer has not recorded his satisfaction that how the suo motu disallowance of Rs. 1 lac made by the assessee on account of administrative expenditure was not justified or correct vis-a-vis the accounts of the assessee and the investment made. In view of this, we do not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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