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TMI Blog2024 (7) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Assessment Scheme as no draft assessment order was issued calling for objections of the appellant and, thus impugned order passed contrary to "Faceless Assessment Scheme, 2019" deserves to be annulled. 3. Without prejudice to the above, the learned CIT[A] is not justified in upholding the disallowance of Rs. 1,32,40,428/- made u/s. 14A of the Act, which is opposed to law and facts of the appellant's case in as much as the appellant has not earned any exempt income during the year and therefore, the disallowance made deserves to be deleted. 4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs." 3. The brief facts of the case are that the assessee being a private limited company engaged in business filed its return of income for the A.Y. 2018-19 on 31.10.2018 declaring a loss of Rs. 9,35,81,944/-. The Audited financial Statement along with Audit Report in Form 3CA & 3CD were also filed. The case of the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt income was earned in the relevant year from some of the investments in debentures and bonds, the Ld.CIT(A) was of the view that though some of the investment might not have yielded any exempt income during the year under consideration but as these investment by their very nature are capable of yielding exempt income in future which is not "includable" in total income, these investment have to be reckoned for the purpose of computing the amount of disallowance u/s. 14A as the disallowance u/s. 14A is not related to the amount of exempt income earned during the year. Accordingly, the Ld.CIT(A) held that the appellant's argument anchored on the premise of actual generation of exempt income during the year is contradicted by the statutory provisions of section 14A and hence not found acceptable. 5) Further the other contention of the appellant made before the AO that it has not made the concerned investment out of any interest bearing fund is also found not relevant by the Ld.CIT(A) to decide the issue in hand after the amendment to Rule 8D w.e.f. 02.06.2016 by way of notification by CBDT. 7. Aggrieved by the order of Ld. CIT(A), the assessee has filed the present appeal before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income or in case an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of total income, the AO shall determine the amount of expenditure incurred in relation to such income in accordance with such method as maybe prescribed. 14. Now this method has been prescribed under Rule 8D. The Rule 8D read as follows: "[Method for determining amount of expenditure in relation to income not includible in total income. 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has stated that no expenditure had been incurred in earning the exempt income and the assessee had not used interest bearing funds to make the investment as such and accordingly, the AO applied Rule 8D(ii) by taking 1% of the average of opening and closing balance of the value of investment as Rs. 1,32,40,428/- i.e. 1% of 132,40,42,815/-. It is well settled law that disallowance u/s. 14A cannot exceed the amount of exempt income earned by the assessee. The Coordinate bench of this Tribunal in case of Brindavan Beverages Pvt. Ltd. vs. DCIT (supra) wherein held as under:- "37. We have heard the rival submissions and perused the material on record. It is settled law that disallowance u/s. 14A cannot exceed the amount of exempt income earned by the assessee. The co-ordinate Bench of this Tribunal in the case of GMR Enterprises (supra) has held as under:- "3.4 We have heard rival submissions and perused the material on record. It is settled position of law that disallowance cannot exceed the amount of dividend income earned during the relevant assessment year. In this context, the following judicial pronouncements support the stand of the assessee:- (i) Joint Investments Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dividend income of Rs. 41,042/-and the Assessee himself computed disallowance under Rule 8D of the Rules to the extent of Rs. 2,38,575/-, which was increased to Rs. 98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs. 8,50,000/-, which was increased to Rs. 2,61,96,790/-. 21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank(2018) 95 Taxman.com 41 (Kar.) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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