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TMI Blog2024 (9) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in confirming the disallowance u/s. 14A of the Act amounting to Rs. 23,00,575/- by invoking Rule 8D of the Income Tax Rules, 1962. The Ld. CIT(A) has erred in not appreciating the fact that during the year, appellant company had neither diverted any interest bearing funds from which exempt income was earned nor any expenditure has been incurred to claim the exempt Income. And the appellant has proved the nexus that all the investments made during the year were from interest free funds. In view of this, there is no justification in making the disallowance and therefore the disallowance so made prayed to be deleted. 2. Without prejudice to the above, the Ld. CIT(A) has erred in confirming disallowance u/s. 14A r.w.r. 8D of the Rules of Rs. 23,00,575/- which is bad in facts as well in law. On the basis of facts and circumstances of the case, such disallowance made is incorrect and thus it is prayed to delete the impugned disallowance." 3. We have heard both the parties. The facts relating to the issue are that the assessee was noted to have made huge investments, yielding exempt income, amounting to Rs. 25.72 crores as at the beginning of the year i.e. on 01.04.2016 and Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at paragraph Nos. 6.2 To 6.3.1 of his order are as under:- "6.2 The main thrust of the appellant's plea against the aforesaid disallowance is that it had sufficient own funds (non interest bearing) that were utilized for investments that resulted in earning the exempt income. Hence the addition made is not tenable. Several case laws were cited by the appellant in favour of such contention. 6.3 The argument raised by the appellant is wide of the mark as its argument is based on the provision of law or Rule 8D which has been amended w. e. f. 02.06.2016 and applicable for the year under consideration, i. e. AY 2017-18. The amended rule is as under:- "[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 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances from the preceding year having been pointed out to warrant NIL disallowance of expenses in the impugned year, except for stating that it had sufficient own funds for making the investments. But this fact was present in the preceding year also when also there were sufficient own funds available with the assessee for making investments yet it had suo moto made a disallowance of Rs. 31 lacs u/s 14A of the Act. Further, we agree with the AO that the possibility of incurrence of NIL administrative expenses was not feasible considering the huge quantum of investments made by the assessee earning exempt income to the tune of approx. 25.65 Crs nor do we find it was explained by the assessee with cogent reasons. 9. In the light of the aforestated facts, the AO, we hold, was correct in being not satisfied with the claim of the assessee of NIL expense being incurred for earning exempt income. The invocation of Rule 8D of the Rules, as a consequence, we hold, has been rightly held by the Ld. CIT(A) to be in accordance with law as per section 14 A(2)/(3) of the Act. 10. The order of the Ld. CIT(A) confirming the disallowance made u/s 14A of the Act of Rs. 23,00,575/- is according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible unit on account of commission expenses, was disallowed from the deduction claimed by the assessee under Section 80IA of the Act and proportionate addition was made to the income of the assessee. 16. The contention of the ld. Counsel for the assessee before us was that in the preceding year i.e. AY 2008-09 and 2009-10, identical issue had come up in the case of the assessee before the ITAT where allocation of such expenses to the eligible unit was held to be inappropriate, having no bearing to the earning of income by the eligible unit and the disallowance made, therefore, was deleted. Our attention was drawn to the order of the ITAT pertaining to AY 2008-09 placed at paper-book page No. 73 to 91. It was pointed out that in the said case, the assessee had claimed exemption/deduction u/s 10B of the Act and this exemption/deduction was reduced by allocation of commission/Head Office expenses in the nature of Director's remuneration, Bank Charges, Auditors Remuneration/Auditors' fees, amounting to Rs. 21,23,528/-. Our attention was drawn to paragraph No.14 of the order, wherein the ITAT noted the facts relating to the expenses and the finding of the ITAT thereafter that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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