TaxTMI 
TaxTMI 
2016 (5) TMI 108
X X X X Extracts X X X X
X X X X Extracts X X X X
....A of the Act, which is bad in law and against facts and circumstances of the case. 3. The appellant craves leave to add, alter, amend, amplify or delete any or all of the grounds of appeal before or at the time of hearing. 2. The facts in brief are that the assessee was engaged in business of manufacturing and export of carpets during relevant period. The assessee filed its return of income on 29/09/2008 declaring income of Rs. 1,50,70,386/-, which was further revised to Rs. 1,50,00,841/- on 17/12/2008. The case was selected for scrutiny and the assessment under section 143(3) of the Income-tax Act,1961( in short the 'Act') was completed on 27/12/2010 making disallowance of Rs. 13,91,082 under section 14A of the Act. Aggrieved, the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g investment was made in 'India Exposition Mart', 'New link overseas finance Ltd' and Indian overseas bank. The investment in dividend yielding companies was made in previous years out of interest free funds. The non-dividend yielding investment was made in business ventures, which the assessee company started with other entities and failed to take off. The investment in shares of such companies was a purely strategic business move and not an investment decision. The AO cannot disallow expenditure relating to investment which has not yielded any exempt income during the previous year relevant to the assessment year under dispute. (ii) No disallowance could be made if there is no exempt income during the year. Reliance was placed on the ju....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mission. The Ld. Senior Departmental Representative, on the other hand, relied on the order of the lower authorities and submitted that the disallowance has been made by the Assessing Officer in accordance with law as the rule 8D of the Rules is held to be effective from the assessment year 2008-09 i.e. the year under consideration. 5.1 We have heard the rival submissions and perused the material on record. The Assessing Officer invoked rule 8D of the Income-tax Rules and computed the disallowance as under: 8D(2)(i) Direct expenses Nil 8D(2)(ii) Interest which is not directly attributable to any particular income or receipt (AXB/C) 12,27,050/- A = interest expenses Rs. 2, 23, 72, 208/- B= average investment Rs. 3, 28, 06, 43....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ards particular income and which is not exempt income, the interest paid cannot be held disallowable under the rule 8D(2)(ii) of the rules. The Hon'ble High Court of Allahabad in the case of Additional Commissioner of Income- tax versus Dhampur sugar Mills private limited reported in 370 ITR 194 has also given similar finding. The relevant part of the judgment is as under: "In the appeal, the Tribunal has confirmed the finding. The Tribunal has observed that the findings of the Commissioner (Appeals) were not controverted on behalf of the revenue. Once it was duly established that no borrowed funds on which interest was paid had been invested for earning tax free income, no disallowance was permissible under Section 14A. The Tribunal has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the total income under the Act in accordance with the method as prescribed under the Rules, if the Assessing Officer is not satisfied with the correctness of the claim of the assessee. In the present case, the specific finding of the Tribunal is that as regards the disallowance of Rs. 67.75 lacs which was made under Section 14A by the Assessing Officer, the interest expenditure was attributable to the business of which the income was assessable to tax. Once this be the position, the view of the Tribunal is consistent with the provisions of Section 14A and does not warrant any interference." 5.4 Further we find that Hon'ble Bombay High Court in the case of CIT versus HDFC bank Ltd (supra) has held that: "5. We find that the facts of the....