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TMI Blog2015 (11) TMI 1875X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in relation to the tax exempt income . The disallowance under section 14 A read with Rule 8 D as worked out by the AO is not in accordance with law and as such working is not sustainable. In view of the above we uphold the order of the Ld. CIT(A) restricting the disallowance u/s 14A to Rs. 9,23,660/-. - ITA No. 724/Chd/2014, Cross Objection Appeal No. 42/Chd/2014 (In ITA No.724/Chd/2014) - - - Dated:- 30-11-2015 - SHRI H.L. KARWA, HON BLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER For the Appellant : Sh. Subhash Aggarwal For the Respondent : Sh. S.K. Mittal ORDER PER ANNAPURNA MEHROTRA A.M. This appeal filed by the Revenue and Cross Objection by the Assessee is against the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share Capital Investment made 2003-04 78.68 359.75 17.71 2004-05 112.87 359.75 10.56 2005-06 254.09 359.75 1.00 2006-07 495.15 359.75 - 2007-08 747.78 359.75 1.45 2008-09 64.03 719.50 8.25 The investment are quite miniscule in comparison to cash profits. The dividend income as submitted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is treated as dismissed. 7. As for the appeal filed by the Revenue, Ld. DR argued that since mixed funds were used for making investments, therefore by virtue of the decision of the Hon ble Punjab Haryana High Court in the case of Abhishek Industries Ltd. 286 ITR 1, some interest expenditure is attributable to the investments made and therefore the disallowance of interest u/s 14A is valid. Ld. DR further relied upon the order of the A.O. 8. Ld. AR on the other hand relied upon the order of the Ld. CIT(A) and pleaded that the disallowance made u/s 14A could not exceed the exempt income earned, being dividend in the present case, amounting to Rs. 9,23,660/-. Ld. AR relied upon the decision of the ITAT Chandigarh Bench in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and indirect expenses. All direct expenses incurred in respect to earning exempt income are taken into consideration under Rule 8D(i). The indirect expenses incurred by the assessee for the purpose of earning exempt income are further categorized into indirect expenses relating to interest and other indirect expenses. For determining the amount of indirect expenses incurred which cannot be clearly identified from the books of the assessee, a formula has been provided for working out the amount of expenditure incurred. In the case of interest the same is worked out by as per Rule 8D(ii) by apportioning the interest expenditure which cannot be directly attributable to the investments, in the ratio of the average value of investments to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Joint Investment Pvt. Ltd. Vs. CIT (ITA No. 117/Chd/2015 dt. 25/02/2015) has affirmed this view holding that disallowance u/s 14A read with Rule 8D cannot exceed the exempt income. The Hon ble Delhi High Court in the case of Joint Investment Pvt. Ltd. Vs. CIT(supra) made the following important observations: 7. During the course of hearing, counsel for the petitioner had relied upon a decision of this Court in Commissioner of Income Tax VI v. Taikisha Engineering India Ltd., (ITA 115/2014, decided on 25.11.2014). The court had, in that judgment, highlighted the necessity in view of the peculiar wording of Section 14 A (2) that computation or disallowance of the assessee, or claim that no expenditure was incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum,i.e., Rs. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8 D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14 A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 10. For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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