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of <h1>Tribunal upholds disallowance for mixed funds, emphasizes expense apportionment. Interest levied under Section 234B.</h1> The Tribunal upheld the disallowance under Section 14A read with Rule 8D, amounting to Rs. 37,59,641, due to the assessee's mixed funds and lack of ... Addition on account of disallowance u/s 14A - Held that:- Investment made in a firm is to be treated as investment for earning exempt income. In case of mixed funds disallowance has to be made u/s 14A r.w.r. 8D. Further there is no force in the submissions that the Assessing Officer has not given any cogent reason for making disallowance in the sense that he has not pointed out which expenditure is relatable. First of all the assessee has not given any working wherein disallowance was made by the assessee himself while filing return. Secondly when the common expenditure and common interest is incurred then allocation has to be made on proportionate basis in terms of Sec 14A r.w.r. 8D for which discussion has been made in case of Chadha Super Cars (2012 (12) TMI 1036 - ITAT CHANDIGARH ) and relevant paras have already been extracted above. Therefore we find nothing wrong in the order of CIT(A) and Ld. CIT(A) has merely followed the order of the Tribunal and confirmed the disallowance. - Decided against assessee. Issues Involved:1. Addition on account of disallowance under Section 14A.2. Levy of interest under Section 234B of the Income Tax Act.Issue-Wise Detailed Analysis:1. Addition on Account of Disallowance under Section 14A:The primary issue revolves around the disallowance made under Section 14A read with Rule 8D of the Income Tax Rules. The Assessing Officer (AO) noticed that the assessee had made significant fresh investments in equity shares during the assessment year 2008-09. The AO questioned the nexus between the interest expenses and the investments made, asserting that the assessee had mixed funds, making it difficult to identify the source of funds used for investments. Consequently, the AO invoked Section 14A read with Rule 8D and computed a disallowance of Rs. 37,59,641.On appeal, the CIT(A) upheld the AO's decision, referencing various judicial precedents, including the Tribunal's decision in CIT v. Sunder Forging. The CIT(A) emphasized that the assessee had mixed funds and did not maintain separate accounts for surplus funds or profits earned during the year.Before the Tribunal, the assessee argued that sufficient funds from profits were available, negating the need for disallowance under Section 14A. However, the Tribunal found no merit in this argument, noting that the assessee admitted to making new investments during the year and had mixed funds. The Tribunal reiterated the principle that disallowance under Section 14A read with Rule 8D is based on the concept of mixed funds, as discussed in the case of Chadha Super Cars.The Tribunal referred to the decision in CIT v. Winsome Textile and CIT v. Hero Cycles, which dealt with the applicability of Section 14A when investments are made out of non-interest-bearing funds. However, the Tribunal clarified that Rule 8D, introduced by the IT Rules (5th Amendment) w.e.f. 24.3.2008, applies from the assessment year 2008-09 onwards. The Tribunal also cited the Bombay High Court's decision in Godrej and Boycee Manufacturing v. DCIT, which upheld the constitutional validity of Rule 8D and its applicability from the assessment year 2008-09.The Tribunal emphasized the theory of apportionment of expenses between taxable and non-taxable income, as approved by the Supreme Court in CIT v. Walfort Share and Stock Brokers P Ltd and followed by the Bombay High Court in Godrej and Boycee. The Tribunal concluded that in cases of mixed funds, disallowance under Section 14A read with Rule 8D is warranted.2. Levy of Interest under Section 234B:The issue of levy of interest under Section 234B was deemed consequential. The Tribunal directed the AO to levy interest in accordance with the law, based on the outcome of the primary issue regarding disallowance under Section 14A.Conclusion:The Tribunal dismissed the appeals of the assessee, upholding the disallowance made under Section 14A read with Rule 8D and directing the AO to levy interest under Section 234B as per the law. The Tribunal's decision was pronounced in the open court on 8.8.2014.
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