TaxTMI 
TaxTMI 
2016 (4) TMI 662
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....l bearing ITA No.1429/Bang/2014: 1) The Learned Commissioner of Income Tax erred in confirming the addition of 0.5% of tax-exempted investment under the provisions of section 14A r.w.s. 8D of the Income Tax rules amounting to Rs. 5,25,381/- 2) The Learned CIT (Appeals) ought to have observed that total exempted income is only Rs. 29,000/- and therefore was wrong in disallowing Rs. 5,25,381/- as expenditure incurred to earn Rs. 29,000/- of income. 3) The Learned Commissioner of Income Tax failed to understand that the income is derived only out of investment of Rs. 92,800/- comprising of 5,800 equity shares of Union Bank of India which was held by the Assessee for the past several years. 4) The Learned Com....
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....be restored. 4) The appellant craves for permission to add, modify or delete the grounds of appeal mentioned above at the time of hearing the case with a prayer to restore the order of AO. 4. Briefly the facts of the assessee are as under: The assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacture and sale of Indian made foreign liquor. Return of income for the assessment year 2010-11 was filed on 9/10/2010. The said return of income was revised on 17/11/2010 and revised for the second time on 31/03/2011 declaring total income of Rs. 2,17,07,860/-. Against the said return of income, assessment was completed u/s 143(3) by the DCIT, Circle 11(4) vide order d....
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....bove. The AO disallowed expenditure u/S 14A r.w. rule 8D of IT Rules of Rs. 80,93,286 as against the exempt income of Rs. 29,000. The appellant's contentions is that disallowance to be restricted to Rs. 29,000 which is the income derived out of exempt investment. In support placed reliance on the following case laws:- (i) ACIT vs. Punjab State Co-operative Marketing Federation Ltd. (25 Taxmann.com 434) (ITAT-Chandigarh) (ii) Sahara (India) Finance Corporation Ltd. vs. DCIT (41 Taxmann.com 251)(ITAT Delhi). 3.5 A perusal of the annual statement of Account for year ending 31.03.2009 and 31.03.2010 following facts emerged. Particulars As on 31.03.2010 As on 31.03.2009 Share capital 22,81,28,330 ....
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....f the Act states that the provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act and accordingly method of working out of such expenditure has been formulated under rule 8D of I.T. rules. However section does not envisage restriction of disallowance except as applicable under rule 8D of I.T. Rules. In Chennai invest Ltd. vs. ITO (2809) 121 ITD 318/124 TTJ (Delhi-Trib) 577 (SB) held that disallowance under section 14A can be made even in a year in which, no exempt income has been earned or received by the assessee, thus proportionate i....
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....ion to the chart filed during the course of hearing wherein it was shown during previous year ended 31/3/2009 paid up capital and reserve and surplus stood at Rs. 43,49,04,713/- and as on 31/3/2010 it was Rs. 46,41,38,387/- wherein value of investments made in subsidiary company i.e. Chitalia Distilleries is Rs. 28,75,39,716/-. Therefore, he submitted that the investments were made out of free reserves of the company and not out of borrowed funds. Hence, no disallowance of interest under any sub-rule of 8D(2) can be made. In respect of disallowance under sub-rule 2(iii) of rule 8D, contention of the assessee is that no expenditure was incurred to earn dividend income of Rs. 29,000/-. He placed reliance on the following decisions: i....