TaxTMI 
TaxTMI 
2016 (11) TMI 747
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....in the present case. 1.1 That the CIT(A) erred on facts of the case and in law in upholding the action of the assessing officer in making aforesaid disallowance under section 14A of the Act read with Rule 8D(2)(iii) of the Rules without appreciating that the appellant had suo motu disallowed expenses amounting to Rs. 24,55,186 under said section, which were computed by following a reasonable and scientific method regularly and consistently followed by the appellant. 1.2 That the CIT(A) erred on facts of the case and in law in upholding the action of the assessing officer in making aforesaid disallowance without appreciating that the assessing officer had not recorded his satisfaction as to incorrectness of appellant's suo motu claim of disallowance under section 14A of the Act. 1.3 That the CIT(A) erred on facts and in law in holding that: (a) dissatisfaction of the assessing officer with the claim of the assessee was not relevant since application of Rule 8D of the Rules was inevitable; and (b) such dissatisfaction could even be recorded by the CIT(A). 1.4 That the CIT(A) erred on facts of the case and in law in upholding the action of the assessing officer in making a....
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....ls), who after considering the submission of the assessee allowed relief in respect of disallowance of proportionate interest of Rs. 6,83,66,201/- following the decision of the Tribunal in assessment year 2006- 07 but sustained disallowance of Rs. 61,80,689/- under Rule 8D2(iii) of the Income Tax Rules. Aggrieved, both the assessee and the Revenue are in appeal raising grounds as reproduced above. 5. First we take up grounds in the appeal of the assessee. In ground No. 1 where the assessee has challenged disallowance of Rs. 61,80,689/- on the ground that Rule 8D of the Income Tax Rules, was not applicable as the Assessing Officer had not recorded his satisfaction as to incorrectness of assessee's suo motu claim of disallowance under section 14A of the Act and no such dissatisfaction could have been recorded by the Ld. Commissioner of Income-tax( Appeals). 6. The learned Authorized Representative of the assessee referred to the pages 1 to 3 of the assessee's paper book and submitted that the assessee bifurcated the total expenses claimed in profit and loss account as expenses related directly to financial activity of Rs. 11,03,90,466/- and indirect expenses of Rs. 37,19,979/-.....
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....006-07, the Tribunal in the case of the assessee has already held that borrowed funds have been utilized only toward finance activity and, therefore, no disallowance for interest towards earning exempt income was upheld. In the year under consideration also the learned Commissioner of Income-tax (Appeals) after analyzing the borrowed funds and deployment thereon observed that the Assessing Officer has not established any nexus of the interest-bearing borrowings and consequent interest expenses with the investments resulting into tax free dividend income. The learned Commissioner of Income-tax (Appeals) has followed finding of the Tribunal in the assessment year 2006-07. Further, the learned Authorised Representative of the assessee submitted that no such disallowance has been made by the Assessing Officer in the preceding assessment year 2009-10 as well as in assessment year 2013-14, and, therefore, in view of the rule of consistency no addition could have been made in the year under consideration. 9. On the other hand, the learned Senior Departmental Representative, as far as the grounds of the assessee's appeal are concerned, relied on the findings of the authorities below and....
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....9/-. The explanation and offer of the assessee is not acceptable in view of the provisions of section 14A of the IT Act, 1961." 11. After recording above dissatisfaction, the Assessing Officer invoked Rule 8D of the Income Tax Rules and computed the disallowances accordingly, therefore, in our view this ground of the assessee is not sustainable and accordingly we dismiss grounds No. 1 to 1.2 of the appeal of the assessee. 12. Further, since we have already held that satisfaction as to incorrectness of the assessee's claim under section 14A has been duly recorded by the Assessing Officer, we are not considering the arguments of the learned Authorised Representative of the assessee whether the learned Commissioner of Income-tax (Appeals) could have recorded the said satisfaction as the issue is rendered only academic. Thus, ground No. 1.3 of the appeal is dismissed as infructuous. 13. In ground No. 1.4, the assessee has raised the issue that the disallowance as under Rule 8D2(iii) could be made by the Assessing Officer only after establishing/specifying the nexus of the expenditure with the earning of the exempt income. We find that, the assessee itself has accepted the fact....
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....also taken plea that the disallowance under Rule 8D2(iii) may be restricted to 0.5% of the investment which actually have resulted in exempt dividend income. We find that Hon'ble Delhi High Court in the case of ACB India Ltd Vs. ACIT (supra), it is held that only those investment which actually have resulted in exempt dividend income, have to be considered for the purpose of computing the disallowance as per Rule 8D of the Income-tax Rules. The assessee has given a computation of disallowance in view of the decision of the Hon'ble Delhi High Court in the case of ACB India Ltd (supra), on pages 232 and 233 of the paper book, working out the disallowances Rs. 41,97,833 /-. Since the details submitted by the assessee are not available on the record of the Assessing Officer, we respectfully following the above decision of the Hon'ble Delhi High Court, direct the Assessing Officer to compute the disallowance under Rule 8D(iii) of the Income-tax Rules at the rate of 0.5% of the investment which actually have resulted in exempt dividend income rather than 0.5% of the average of total investment. Thus, the ground of the assessee is partly allowed. 16. With regard to the ground of the Re....
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....to tax-free dividend income. Similar issue has arisen in the appellant's own case in the AY 2006-07, wherein although Rule 8D was not into existence but no such attributability of interest expenditure relating to tax free dividend income was found at the level of Hon'ble ITAT. The Hon'ble ITAT has given categorical finding in the appellant's case as under: "Nothing stopped the AO from determining the expenditure incurred in relation to the exempt income earned by the asses see. But for doing so, a "reasonable basis" had to be adopted. And the most reasonable basis, rather, the first reasonable basis for such determination can be none else than the nexus between the expenditure incurred and the exempt income earned. Now, evidently, the AO did not establish any such nexus between the expenditure incurred and the exempt income earned by the assessee company. Even the CIT(A), though he restricted the disallowance from Rs. 47,33,200/- to Rs. 16,54,531/-, did not establish any such nexus and it was merely observed that this amount related to the investment activity of the assessee company, without clarifying as to how it was found to be so." In appellant's own c....