TaxTMI 
TaxTMI 
2015 (9) TMI 544
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder consideration, assessee filed its return of income declaring total income of Rs. 319,56,36,810. In course of assessment proceeding, AO noticed that during the relevant PY assessee has made investment in mutual funds, which has resulted in dividend income which is exempt from tax. He noticed that during the PY, assessee had purchased units from mutual funds worth Rs. 5472,44,86,801 on different dates beginning from April'09 to March'09 and has sold all the units including opening balance worth of Rs. 295,05,66,474 on different dates prior to 31/03/2010 for a total sale consideration of Rs. 5771,02,72,551. Assessee during the year had earned dividend income of Rs. 3,52,19,276, which has been claimed as exempt from tax. AO observed that, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....653/Hyd/12 of the coordinate bench, it is seen, the Tribunal sustained the disallowance under Rule 8D(2)(ii) by observing as under: "However, so far as disallowance of Rs. 74,12,030 @ 0.5% on the average value of investment under rule 8D(2)(III) is concerned, we are of the view that the same is in order. Reading of the provision contained u/s 14A and more specifically sub-section(3) of section 14A read with rule 8D(2)(iii) makes it clear, even where the assessee claims that he has not incurred any expenditure for earning exempt income, disallowance of expenditure deemed to have been incurred has to be worked out @ 0.5% on the average value of investments. As the AO has correctly computed disallowance in terms with rule 8D(2)(iii), the same....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion from the employees, but, an amount of Rs. 7,82,156 was deposited beyond prescribed due date. He, therefore, disallowing the amount of Rs. 7,82,156 added back to the income of assessee for the year under consideration. 9. Assessee challenging the disallowance before CIT(A) contended that as employees contribution had been paid before due date of filing of return u/s 139(1), no disallowance of the amount can be made. In this connection, he relied upon a number of decisions of High Court as well as ITAT. Ld. CIT(A) after considering the submissions of the assessee in the light of the judicial precedents placed before her observed, after omission of the second proviso to section 43B of the Act by the Finance Act, 2003 with retrospective e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oor and needy, whereas, the investment in mutual funds is not the business activity of assessee. Since assessee has earned dividend income on investment made in mutual funds, which is exempt from tax, AO observed that assessee has diverted borrowed money to non-business activities, therefore, the interest expenditure incurred for such non-business activities is not allowable u/s 36(1)(iii). Though, assessee submitted explanation objecting to proposed disallowance of interest expenditure, but, AO did not find any merit in the submissions of assessee. AO observed that while borrowing money, assessee is paying interest at the average rate of 12%. He further noted that the aggregate value of investment in mutual funds during the year was Rs. 54....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utual funds during the year, it has to be presumed that such investments were made out of the interest free funds and the borrowed funds were utilized for the purpose for which it was advanced by the bank. Accordingly, she deleted the addition made by AO on account of disallowance u/s 36(1)(iii). 15. We have heard the parties and perused the materials on record. As could be seen from the materials on record, there is no dispute to the fact that assessee was having sufficient surplus funds available with him to make investments. It is the claim of assessee that own surplus funds available with assessee were utilized for making investment in mutual funds and no borrowed funds were utilized. The department has not brought any material on reco....