2016 (5) TMI 1278

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....r referred to as "the Act") for Assessment Year 2009-10 vide his order dated 22.11.2011. 2. At the outset, we find that the Cross Objection preferred by assessee is delayed by two days. It was explained by the Ld. AR that the Director was out of station on the due date and hence, the appeal could not be filed within time and immediately on his return to office, signature was obtained on the cross objection and filed the same before the Tribunal. We are convinced with the explanation given by the Ld. AR for the delay and accordingly, we hereby condone the delay and admit the Cross Objection. 3. We find that the assessee has raised the additional ground in its Cross Objection as below: "For that the Ld. CIT(A) erred in confirmi....

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....al funds amounting to Rs. 19,21,520/- and tax free interest income of Rs. 2,11,741/-. The assessee voluntarily disallowed a sum of Rs. 6,38,553/- u/s. 14A of the Act as expenditure incurred for the purpose of earning exempt income. The Ld AO without recording any satisfaction in terms of Rule 8D(1) of the I. T. Rules, 1962 (hereinafter referred to as "the Rules") having regard to the accounts of the assessee, proceeded to directly invoke Rule 8D(2) of the Rules and made disallowance of Rs. 13,24,582/- after reducing the amount already disallowed by the assessee in the sum of Rs. 6,38,553/-. During the course of hearing, the Ld. AR assailed the issue before us on two grounds. He argued that the assessee has got sufficient own funds in the fo....

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....r), wherein it was held that - "We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paper book and the same is enclosed as annexure-Ill to this order. It is clear from the said statement that the avail ability of profit, share capital and reserves and surplus was much more than investments made by the assessee which could yield tax- free income. The hon'ble Bombay High Court in CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) has held that where the interest-free funds far exceed the value of investments, it should be considered that investments have been made out of interest-free funds and no disal....

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....sessee. In the instant case, the Ld. AO had not recorded the satisfaction in the required manner as per Rule 8D(1) of the Rules. Hence, we hold that Ld. AO is not entitled to mechanically apply rule 8D(2) of the Rules without recording satisfaction in terms of Rule 8D(1) of the Rules. In this regard, we place reliance on the decision of Coordinate bench of this Tribunal in the case of Hindustan Motors Ltd., supra, wherein it was held that - "11. It is also observed that in the computation of total income, disallowance of Rs. 2,47,79,104/- was offered by the assessee under section 14A in relation to the expenditure incurred in relation to earning of exempt income and there was no reason given by the Assessing Officer, having regard ....