2012 (10) TMI 1061

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....in law and on facts in deleting addition of Rs. 15,50,415/- on account of interest expenditure u/s.14A without appreciating the fact that the assessee had made substantial investment in shares of the associates company, financing or money lending and this investment had bee made with the sole purpose of earning dividend which had been made claimed as exempt income." 3. The assessee is a company engaged in the business of manufacturing and exporter in Dyes and Chemicals etc. Assessee filed its e-return for A.Y. 2008-09 on 30-9-2008 declaring total income at Rs. 11,04,32,383/-. The case was taken up for scrutiny. During the course of assessment proceedings the A.O. observed that the assessee-company is having investments of Rs. 1,02,25,000/-....

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....tial force in the submission of the assessee. Rule 8D can be applied when there is finding that interest bearing funds were utilized for earning tax free income. The assessee has claimed that no interest bearing funds have bee utilized for investment in shares. The CIT (A) order for A.Y. 2004-05/2005-06 deleting the disallowance of interest (though not u/s.14A) was there on record. The CIT(A) had given the finding that no interest bearing funds were used for the aforesaid investments. Those orders of the CIT (A) and the finding have now been confirmed by the ITAT vide order No. ITA 4237/Ahd/2007 & ITA 1593/Ahd/2008 dated 31-5-2011. It is the pre-requirement by the A.O. to show that claim of the assessee is wrong and only then Rule 8D can be....

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....he investments exists during the year and has been made with the intention of earning divided, it is immaterial as to whether the assessee has earned any exempted income during the year or not. He therefore, urged that the A.O. was right in making the disallowance u/s. 14A and therefore, order of the A.O be upheld. 7. The Ld. A.R. on the other hand submitted that the investments in Jay Infra Trade Pvt. Ltd., was made in F.Y. 2003-04. The investments were made in the normal course of the business and were made out of own funds. The assessee was having sufficient interest free funds when the investments were made due to enough cash profits. The Ld. A.R. further submitted that disallowance of interest made in A.Y. 2004-05 was deleted by CIT(A....

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....ich were far in excess of investments, presumption may be drawn that the amount had been invested 'out of own' funds. The Ld. A.R. pointed to the decision of Hero Cycles 323 ITR 518(Del), where the Hon'ble High Court has held that the disallowance u/s.14A requires finding of incurring of expenditure. In the case of Maxopp Investment Ltd vs. CIT.(2012) 247 CTR 162 Hon'ble High Court has held that for making disallowance u/s.14A A.O. has to be satisfied on an objective analysis and for cogent reasons that the amount of expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of reasonable and acceptable method of apportionment. The Ld. A.R. submitted that since in the prese....