TaxTMI 
TaxTMI 
2016 (5) TMI 1292
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Rs. 42,42,857/- u/s 14A of the Act. 2.2 Assessee aggrieved by this order of the AO preferred first appeal before the ld. CIT(A) who after considering the submissions deleted the disallowance. 2.3 The ld. DR vehemently argued that the ld. CIT(A) was not justified in deleting the disallowance. He submitted that the year under appeal is for the assessment year 2011-12. Therefore, the provisions of Rule 8D has rightly been applied by the AO. The ld. DR strongly relied on the order of the AO. 2.4 On the contrary, the ld. Counsel for the assessee opposed the submission of the ld. DR and submitted that the AO was not justified in making the disallowance as the assessee is having sufficient interest free funds and it has been utilized for making investment. He further submitted that the assessee is having higher operational income than the expenditure towards interest. The ld. Counsel for the assessee submitted that the assessee has not borrowed the funds. He submitted that under these facts, the AO could not have made disallowance towards interest expenditure. He further submitted that the AO has failed to appreciate the facts that the assessee itself had made the disallowance of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e A= amount of expenditure by way of interest other than the amount of interest included in clause (1) incurred during the previous year B= the average of value of investment, income from which does not or shall form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. C= the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 3. For the purpose of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease an amount of revaluation of assets.] 3.4 By looking at this method, it becomes clear that the clause (i) is not applicable to the case of the assessee. However, clause (ii) and (iii) is applicable to it and the disallowance u/s 14A is calculated as under:- Disallowance as per clause (ii) - interest* average investment/Average of total assets Total investment at the end of the current year and previous year are Rs. 5,87,35,676/- and Rs. 3,27,20,329/- respectively, the opening and closing value ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which constitutes major proportion of its total investment i.e. 96.25% and all the investments were made out of its own surplus fund and apart from this, it had also made short term investment in the shares, liquid funds and Mutual Funds out of its owned funds for proper utilization of surplus funds. Appellant company incorporated a wholly new subsidiary company named M/s. AU Housing Finance (P) Ltd. in Feb. 2011 to focus on retail mortgage and housing finance during the period under review and in this appellant has made total investment of Rs. 225.00 lakhs and 30.00 lacs in wholly subsidiarires M/s. AU Housing Finance (P) Ltd. and M/s. AU Insurance Broking (P) Ltd. respectively and Rs. 259 lakhs in M/s. Index Money Ltd. from its own fund that is amount received from capital raised and surplus available from operational activities which constitutes major part of the total investment i.e. 96.25% of total investment however appellant did not receive any income from these subsidiary companies. Appellant has also submitted that these investments are meant for long term basis and it had not incurred any day to day administrative expenditure on making these investments or disinvestment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nment in the cases where the expenditure is incurred for composite / indivisible activities in which taxable and non-taxable income is received but when no expenditure ha been incurred in relation to the exempt income then principle of apportionment embedded in Section 14A has no application. The object of Section 14A is not allowing the reduce tax payable on the non-exempt income by deducting the expenditure incurred to earn the exempt income. In the case in hand it is not the case of the Revenue that the assessee has incurred any direct expenditure or any interest expenditure for earning the exempt income or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which is taxable. For attracting the provisions of Section 14A of the Act, there should be proximate cause for disallowance which has no relationship with the tax exempt income as held by the Hon'ble Supreme Court in case of CIT vs. Walfot Share and Stock Brokers (P) Ltd. (2010) 326 ITR 1. Therefore, there should be a proximate relationship between the expenditure and the income which does not form part of t....