TaxTMI 
TaxTMI 
2013 (8) TMI 320
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....m/long term capital gain of Rs.2,67,006/- on sale of units of mutual funds; dividend income of Rs.1,40,41,005/- and interest income of Rs.92,96,954/-. Assessee has debited interest expenses of Rs.74,41,311/- on overdraft bank account for the year. The Assessing Officer made the disallowance of interest payment of Rs.18,71,500/- being proportionate of interest free non-business advances against the total interest bearing funds. The Assessing Officer also disallowed interest of R.29,92,496/- by applying the provisions of Rule 8D(b) and Rs.6,73,909/- being 0.5% of the average investment by applying the provisions of Rule 8D(c). Thus, total disallowances u/s 14A read with Rule 8D was Rs.36,66,405/-. The CIT (A) deleted both these additions by o....
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..... Regarding the disallowance u/s 14A, the various case laws relied on by the appellant make it clear that disallowance u/s 14A requires a finding of fact that expenditure was incurred for earning the exempted income. There is no positive finding by the assessing officer with regard to the actual expenditure incurred on earning income from dividend. Hence the disallowance u/s 14A cannot be upheld. Moreover, the appellant has correctly argued that the addition of Rs.6,73,909/- has been made twice over, as the appellant had itself disallowed this amount in the computation of income. After carefully considering the orders passed by the ITAT, Delhi and the CIT(As) in a number of preceding assessment years, the following disallowances are deleted....
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.... of representative, we have gone through /the record carefully. Learned First Appellate Authority has deleted the disallowance on the ground that assessee has more surplus interest free funds than the advances and investment. In other words on the record Assessing Officer failed to establish that interest bearing funds were used either for making advances to the sister concern or for investment in the mutual funds. If that be so, then how disallowance can be made. The stand of the Assessing Officer is that assessee should have used its own fund instead of interest bearing borrowings for running the business. In our opinion, Assessing Officer cannot force the assessee to earn interest income or save interest expenses for running the business....
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.... of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) & (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing office....
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....nder the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a....