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TMI Blog2023 (2) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... income. We agree with the view of the ITAT that in the present case the AO has neither examined the claim in respect of expenditure incurred in relation to exempt income of the assessee nor has recorded any satisfaction with regard to the correctness of assessee s claim with reference to the books of account. Consequently, the disallowance made by applying the Rule 8D is not only against the statutory mandate but contrary to the legal principles laid down. In our view too, the CIT (A) has rightly deleted the addition made on account of interest expenditure as the assessee had sufficient interest free surplus fund to make the investment and the ITAT has rightly deleted the disallowance made by the AO u/s 14A r.w Rule 8D. Consequently we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing aggrieved by order dated 17.04.2015, the Assessee company and the Revenue filed an appeal before the Hon ble ITAT. 6. The Hon ble ITAT vide order dated 05.04.2017, allowed the appeal of the Assessee company and dismissed the appeal filed by the Revenue. 7. The questions of law averred in the appeal and placed for our consideration are as under: a. Whether in law and on the facts of the instant case, was the Tribunal correct in holding that the AO has not recorded any satisfaction that the working of inadmissible expenditure u/s.14A is incorrect having regard to the books of accounts of the assessee, whereas in para 5 of Assessment order, the AO has clearly mentioned that the assessee has set off interest costs in respect of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by introduction of rule 8D in 2008- 09 which provides for a method of calculations. It is submitted that in view of the above, the ITAT erred in endorsing the CIT(A) s order which drew presumption of own interest free funds. He further submitted that the ITAT ought not to have deleted the addition of interest disallowed by the AO, in the absence of any evidence that indicated that borrowed funds were not used for the purpose of making investments that yielded exemption. He further submitted that the ITAT ought not to have been considered interest while calculating disallowance u/s. 14A read with Rule 5D since the assessee had not maintained a separate account for the investment related to exempt income. 9. Mr. Pardiwalla, learned senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned, the issues stand concluded in its favour in respect of the assessment years 1998-99, 1999-2000 and 2001-02. Earlier to the introduction of subsections (2) and (3) of section 14A of the Act, such a determination was required to be made by the Assessing Officer in his best judgment. In all the aforesaid assessment years referred to above it was held that the Revenue had failed to establish any nexus between the expenditure disallowed and the earning of the dividend income in question. In the appeals arising out of the assessments made for some of the assessment years the aforesaid question was specifically looked into from the standpoint of the requirements of the provisions of sub-sections (2) and (3) of section 14A of the Act which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2002-03, to hold that the claims of the assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier assessment years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed and the dividend income received. That any part of the borrowing of the assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available (Rs. 270.51 crores as on April 1, 2001 and Rs. 280.64 crores as on March 31, 2002) remains unproved by any material whats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court. 11. In the present case, the assessee had earned an exempt income of Rs. 84,30,37,423/- from shares and mutual funds and submitted a computation of inadmissible expenditure u/s 14A amounting to Rs. 13,66,635/- . The assessee claimed that the disallowance made u/s14A was as per the books of account attributable to earning of exempt income. On a perusal of the assessment order we find that there is no discussion by the AO with regard to the computation of inadmissible expenditure made by the assessee forming part of the return of income. Further, the AO has not recorded any satisfaction that the working of inadmissible expenditure u/s14A is incorrect with regard to the books of account of the assessee. The provision u/s 14(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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