AI Drafter 
TaxTMI 
TaxTMI 
2015 (10) TMI 306
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....read with Rule 8D(ii) and 8D(iii) of Income Tax Rules, 1962. 2. That while sustaining the disallowance of Rs. 4,82,690/- u/s 14A of the Income Tax Act, 1961, the Ld. C.I.T.(A)- II, Kanpur has failed to consider and appreciate that there was no direct or indirect nexus between the investment in shares/units of Mutual Funds and the interest bearing funds. 3. That the Ld. C.I.T.(A)-II, Kanpur has also failed to appreciate that buying of units of Mutual Funds was incidental to carrying on of the business and it was to be treated as business (operating) asset and all the expenses incidental thereto were admissible u/s 36/37 of the Income Tax Act, 1961. 4. That the disallowance of Rs. 4,82,690/- u/s 14A of the Income Tax Act, 1961 sustai....
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.... which the argument of the assessee was that Rule 8D was inserted with effect from 24/03/2008 and this rule is not retrospective in operation and hence, cannot be invoked in the present case. The Assessing Officer has also reproduced a brief note of the assessee regarding Rule 8D. In this brief note, it was submitted by the assessee that the funds invested in Mutual Funds are advance receipt from the customers, which are not interest bearing and the same have to be invested in fixed deposit or Mutual Fund for providing liquid security to the bank for issue of letter of credit in favour of the assessees who gave the advance. Although these replies are given by the assessee before the Assessing Officer but the assessee has not furnished any d....
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....y Learned A.R. of the assessee is the judgment of Hon'ble Punjab & Haryana High Court rendered in the case of Hero Cycles Ltd. (supra). In this case, it was held that where it is found that for earning exempted income, no expenditure has been incurred, the disallowance u/s 14A cannot stand. In the present case, we have already noted that some portion of bank charges paid to the bank for issuing bank guarantee by the bank in favour of the customers for obtaining advance from them is to be treated as expenses incurred for earning exempted dividend income and therefore, in the facts of the present case, it is seen that this is not a case where it can be said that no expenditure was incurred for earning dividend income. Hence, this judgment....
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.... by assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. In this regard, we find that in the facts of the present case, it is seen that at least bank charges paid to the banks for issuing letter of guarantee in favour of the customers for obtaining advance from them is an expenditure incurred for earning exempted dividend income because it is admitted position as per the assessee also that such advances were used for making investment. In the present case, this claim of the assessee that no expenditure was incurred for earning exempted dividend income is not correct. Exact amount of such expenditure cannot be determined by the Assessing Officer when no details were ....
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.... Funds and shares as on 31/03/2008 is of Rs. 694.84 lacs and the advance from customers on this date was only Rs. 122.04 lacs and therefore, it is seen that the advance from customers was not enough to cover this much investment in shares and Mutual Funds. There is no other argument of the assessee before any of the authorities below as to in addition to advance from customers, which interest free fund was available with the assessee for making investment in shares/Mutual Funds. We have already discussed that even for these advances from customers also, even if interest expenditure was not incurred by the assessee, the assessee must have incurred the bank charges for providing bank guarantee to the customers. Therefore, in the facts of the ....