TaxTMI 
TaxTMI 
2014 (9) TMI 511
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....d any expenditure for earning any exempt income. It is seen that during the relevant assessment year the appellant company has shown investment of Rs. 2 crore which were actually invested in the assessment year 2008-09. For convenience the details of investment of Rs. 2 crore as reflected in Schedule V of the audited balance sheet are given below : S.No. Date Investments Amount 1 12.10.2007 Sundaram BNP Paribas Carpex opportunity fund Rs. 50,00,000/- 2 12.10.2007 Tata Infrastructure Fund Rs. 50,00,000/- 3 12.10.2007 Reliance Diversified Power Fund Rs. 50,00,000/- 4 06.11.2007 Sundaram BNP Paribas Carpex opportunity fund Rs. 25,00,000/- 5 12.10.2007 Tata Infrastructure Fund Rs. 25,00,000/- Total Rs.2,00,00,000/- From the above chart it is clear that all the investments in various Growth Oriented fund were made by the appellant company in the assessment year 2008-09 and no new investment has been made by the appellant company in the relevant assessment year 2009-10. The appellant company has also not claimed any exempt income in its return of income. From further verification it is noted that the invest et of Rs....
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.... The AO should be satisfied that the claim of expenditure in relation to tax free income has not been correctly made by the assessee having regard to his accounts. ii. The AO Should be recording his satisfaction a how the assessee's calculation is incorrect. iii. Even where the assessee's claim 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. iv. In case, the assessing .officer is not satisfied with the claim of the assessee, then on the basis of objective criteria and after giving the assessee a reasonable opportunity, he shall have to reject the claim and state the reasons for doing so. Having doing so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. Now adverting to the present case it is seen that the AO has applied rule 80 read with section 14A without establishing any nexus between the borrowed funds and the investment ma....
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.... it will effect the correct taxable income for the year under consideration. The expenditure can be allowed only when it has been incurred wholly and exclusively for the business purpose. Once any expenditure has been incurred to earn the exempted income, the income may not have been realized during that year, however, the expenditure deserves to be disallowed by applying the provisions of Rule 8D as it is related to the earning of exempted income in the year or in future years. 5. On the other hand, ld. AR relied on the order of CIT (A) and pleaded that the assessee was having own funds of more than Rs. 7.7 crores which is evident from page 3 of the paper book. He also pleaded that the assessee has made an investment of Rs. 2 crores in the mutual funds in the earlier years. There is no new investment in the year under consideration. Same figure has been continuing as on 31.03.2009 which is also evident form page 3 of the paper book. No borrowed funds have been utilized for earning exempted income. The investments were made in the preceding years out of the assessee's own funds. It was also pleaded that net current assets of the assessee was Rs. 36.03 crores and borrowed funds w....
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....curred and income generated. (viii) ITAT, Chennai dated 07.11.2013 in the case of DCIT vs. M/s. Allied Investments Housing P. Ltd. in ITA No.305/Mds/2013 - wherein the disallowance made u/s 14A was deleted for the reasons that the assessee did not make any fresh investment during the year which could generate income in forthcoming years. The assessee incurred interest expenditure under five major heads and none of which is directly related to earning of exemption income and the Assessing Officer has not pointed out any direct nexus between the interest expenditure and exempt income; (ix) Hon'ble Gujarat High Court decision in the case of CIT vs. Corrtech Energy (P.) Ltd. - [2014] 45 taxmann.com 116 (Gujarat); and (x) Hon'ble Allahabad High Court decision in the case of CIT vs. Shivam Motors judgment dated 05.05.2014. 6. We have heard both the sides on the issue. Before us, the assessment year under consideration is 2009-10 wherein the Rule 8D is applicable. The reliance placed on by ld. AR on the following decisions is not applicable to the assessee's case as these decisions are for the period prior to Rule 8D came into operation :- (i) DCIT vs. Gujarat Narma....