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TMI Blog2021 (11) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest disallowance made under rule 8D (2) (i) of the act of ₹ 24,657,534/ deserves to be deleted, hence, we direct the learned assessing officer to delete the same. Disallowance under rule 8D (2) (iii) the amount equal to % of the average value of the investment Income from which does not or shall not farm part of the total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year - The claim of the assessee is that the opening balance and closing balance of the investments on which exempt income is received during the year is Rs Nil. The assessee has submitted the various accounts of such investments before us. In case if the opening balance and the closing balance of such investments from which exempt income is received during the year is rupees nil, naturally the average of such investment would also be Nil and therefore the consequent disallowance would also be Nil. We hold that there cannot be any disallowance under rule 8D (2) (iii) of the act is also Nil. Accordingly, we direct the learned assessing officer to delete the disallowance under rule 8D (2)(iii) of the act. Accordingly we direct the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer noted that assessee has paid interest expenditure of Rs. 2,92,58,246/- and claimed it as an allowable expenditure. He also referred to the cash flow statement submitted by the assessee. He further referred to the HDFC Bank and stated that the interest-bearing funds have been utilised to make investment in the units of mutual fund income from which the dividend is exempt from the tax is earned. With respect to the argument of the owned funds the learned AO held that assessee did not consider that such funds are deployed other than investment activity. He rejected the argument of the assessee that it has used its own funds for making such investments. Therefore, on examination of the cash flow statement of the assessee for the year ended on 31st of March 2010 he held that assessee has utilised its funds for making substantial investment in the form of investment in mutual funds the income from which is exempt from tax. It was further noted that assessee has also made certain investments in equity shares of its subsidiary companies. The AO noted that the cash flow by way of proceeds from issue of equity shares amounting to ₹ 1625 crores out of which subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of interest free funds available. He referred to the paragraph number 5.1 of the order of the learned CIT A wherein it is mentioned that the interest free owned funds available with the assessee was to the tune of ₹ 3920 crores whereas the total investment made was only ₹ 1343 crores. b. Only those investments are to be considered for the purpose of disallowance under rule 8D He submitted that the opening balance of the investments which yielded tax-free income as well as the closing balance of the investment which yielded tax-free income is Rs. nil on both the dates. Therefore, average of such investment at the beginning of the year and at the close of the year is also nil. Hence, there cannot be any disallowance under that clause. c. Even otherwise, he submitted that that interest disallowance could not have been made under rule 8D (2) (i) in the case of the assessee for the simple reason that the learned assessing officer has merely taken the source of fund from the HDFC bank account of the assessee. He submitted that this is the normal bank account of the assessee and it is a case of mixed funds available with the assessee. d. He otherwise s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income tax rules 1962 for working of the disallowance u/s 14 A of the act. 9. Now we come to the disallowance u/r 8D (2)(i) . This sub rule provides that the amount of any expenditure directly relating to income, which does not form part of total income, is required to be disallowed. On careful analysis of the facts stated before us, we find that assessee has interest free owned funds of ₹ 3920 crores as on 31st of March 2010. The total investment made by the assessee in which tax-free income could have been earned is ₹ 1343 crores as on that date. Further, that investment from which exempt income has been actually earned during the year is only ₹ 605 crores. Furthermore, the investment made by the assessee is out of the mixed funds, as it did not maintain the books of account of the earning exempt income as well as taxable income separately. The honourable Supreme Court in case of Commissioner of income tax versus Reliance industries Ltd [2019] 102 taxmann.com 52 (SC)/[2019] 261 Taxman 165 (SC)has held as Under:- 7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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