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TMI Blog2012 (11) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... th Rule 8D amounting to Rs.22,98,627/-. Ground of ITA No.1220/Ahd/2012 (A.Y. 09-10) 1. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming disallowance amounting to Rs.3,62,210/- u/s 14A of the Income Tax Act, read with Rule 8D of the Income Tax rules, 1962. 2. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming disallowance amounting to Rs.3,20,600/- u/s 36(1)(iii) of the Income Tax Act, 1961. 2. The first ground of appeal in A.Y. 07-08 is against confirming disallowance of interest on TDS to the extent of Rs. 1,05,005/-. The A.O. observed that the assessee has claimed interest on TDS of Rs.1,05,005/-. The show cause notice was given to the assessee. The appellant was agreed to propose the addition before the A.O. Before the ld. A.O., the appellant agreed to make the addition of Rs.1,05,005/-, even then, he challenged this issue before the CIT(A) who had dismissed the appeal on page no.2 of the appeal order on the reasoning that interest paid by the appellant on TDS can only be in one circumstance, i.e. late payment of TDS to the Government treasury. The appellant utilized Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been given by the A.O. and disallowances were worked out at Rs.3,62,210/- u/s. 14A read with Rule 8D. 6. The assessee even accepted the working before the A.O., carried the matter before the CIT(A) who had dismissed the appeal for A.Y. 07-08, the operative portion of the order is as under: 3.3 I have considered the facts of the case and the submissions of the appellant. I am not inclined to accept the contentions of the appellant. The Hon. ITAT Special Bench, Mumbai in the case of M/s. Daga Capital Management Pvt. Ltd., and Others vide its order dt: 20-10-2008 examined the background which led to the insertion of the section 14A by the finance Act, 2001 with retrospective effect from 01-04-1962. It also considered the memorandum explaining the provision in the finance bill, 201 (248 ITR (st) 195) and Circular No. 14 252 ITR (st) 65. It also considered the Heydon's Rule also known as ' Mischief Rule' and held a) Section 14A has overriding effect over all other sections allowing deduction (Papra 17.7 of the order) b) Sub-section (2) (3) of sec. 14A are procedural in nature and hence retrospective. (Para 18 of the order) c) On going through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected. For A.Y. 2009-10, the CIT(A) s finding is as under: 2.3 Decision I have carefully perused the assessment order and the submissions given by the appellant. Disallowance u/s. 14A The appellant has submitted that disallowance u/s. 14A has already been made for A. Y. 2007-08. The appellant had not made any new investment during the year, therefore, no disallowance is called for. The appellant had sufficient interest free funds for making the investment. The submission of the appellant is not acceptable as the disallowance of the expenses pertaining to the investment in tax exempt assets u/s. 14A is to be made out of the expenses claimed by the appellant in the Profit and Loss Account. The disallowance is determined after taking into account the interest expenses and the administrative expenses after applying Rule 8D. The disallowance has to be made every year as long as there is an expenditure which is incurred for earning the tax exempt income and the expenditure has not been disallowed by the appellant himself from the expenses claimed by him. The claim of the appellant that there was a reduction in the unsecured loans is also of no avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gel Chemicals Pvt. Ltd., Bhavnagar, in ITA No. 3533/Ahd/2008 for A.Y. 05-06 wherein Co-ordinate B Bench on identical facts, had dismissed the appeal of the Revenue. Similar issue dealt by Co-ordinate C Bench in case of Sagar Drugs Pharmaceuticals (P) Ltd. vs. ACIT, Range-8, in ITA No. 3170/Ahd/2009 for A.Y. 06-07. It was held that disallowance on administrative expenses cannot be made prior to 07-08 unless there is a direct nexus established by the A.O. Rule 8D is effective from A.Y. 08-09 which cannot be applied for A.Y. 07-08. Therefore, the CIT(A) was not right in confirming the disallowance made under Rule 8D of the IT Rule from administrative expenses unless of course a direct nexus is established which has not been done in the present case. Accordingly, the addition made by the A.O. and confirmed by the CIT(A), may be deleted. 8. We have perused the orders of the authorities below and gone through the case laws cited by the appellant. The appellant had challenged the action of the A.O. on the reasoning that Rule 8D is not applicable for A.Y. 07-08, had confirmed the view by the Hon ble Bombay High Court decision in case of Godrej Boyce vs. DCIT. Hon ble Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant has also submitted that there was a double disallowance of interest u/s.14A as well as u/s.36(1)(iii) of the Act. The claim of the appellant is without any basis. The disallowance u/s.14A is made out of the interest paid by the appellant by working out the proportionate interest which corresponds to the investment made in shares. Similarly, the disallowance u/s. 36(1)(iii) is made by working out the proportionate interest corresponding to the interest free loans given by the appellant out of the interest bearing funds. Therefore, both the disallowances have no overlapping and have rightly been made separately by the A.O. The ground of appeal is accordingly dismissed. 12. Now the matter is before us. Ld. Counsel for the appellant contended that the unsecured loan had been reduced from 1.79 crore to 1.38 crore. He has also drawn our attention on page nos. 44,45,47 48 and claimed that advances were made in earlier year. The assessee has interest free fund by way of share capital, reserves and surplus, share application money. The interest free advances were given to maintain the business relation and for business expediency. Further, he also relied on Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X
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