TaxTMI 
TaxTMI 
2015 (11) TMI 1631
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....order passed by the Deputy Commissioner of Income Tax, Circle-11(5), Bangalore. 2. The respondent-assessee is an undertaking of Government of Karnataka engaged in financing industrial units. During the assessment year 2009-10, the assessee had made investments to the tune of Rs. 1,24,04,17,118/- in securities on which it earned dividend income of Rs. 2,51,95,563/-. The assessee company filed its return of income for the assessment year 2009-10 declaring "NIL" income. The case was taken up for scrutiny and the assessment was completed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') by the order dated 21.11.2011 determining the loss of assessee at Rs. 1,73,60,760/-. As per the provisions of Se....
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....ed in the return of income. The ITAT, by its order dated 02.05.2014 affirmed the order passed by the Appellate Commissioner concluding that the disallowance made by the Assessing Officer was not in accordance with the provisions of Rule 8D(2)(ii) of the Rules. It further observed that the Assessing Officer has failed to specify as to why 5% was adopted and as to what is the basis to arrive at that figure and consequently has failed to justify that it was an appropriate estimation. The Tribunal, having concluded that as the disallowance was made by the Assessing Officer on an ad hoc percentage without any basis and without assigning any reason whatsoever, upheld the order passed by the Appellate Commissioner. 3. Before proceeding further, ....
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.... Rule 8D of the Rules: "Method for determining amount of expenditure in relation to income not includible in total income. 8D - (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with - (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of foll....
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....the material on record contends that the orders passed by the Appellate Commissioner as well as the ITAT are liable to be set aside. We are unable to accept the said contention of the learned counsel for the Revenue. On going through the orders passed by the authorities below, we find that the Appellate Commissioner and the Tribunal are justified in setting aside the orders passed by the Assessing Authority relating to disallowance. We also find that the Appellate Commissioner as well as the Tribunal are justified in concluding that the disallowance of Rs. 1,03,08,426/- being a sum of 5% of indirect expenditure is not in accordance with the provisions of Rule 8D(2)(ii). Though the Assessing Officer computed the disallowance purportedly und....
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....e value of investments, income from which does not form part of total income. As regards the 1st and 3rd limbs of Rule 8D mentioned supra, there is no dispute in this matter. As regards the interest referred to in the second limb of Rule 8D of the Rules, the assessee contends that the amounts of investment in such securities in the period under consideration is much less than the amount of capital and surplus funds available with the Company and no portion of the borrowed funds were utilized to make such investments. It is now well settled principle that the disallowance towards interest is not tenable if the investments are made out of own funds or non-interest bearing funds and it is necessary to establish a nexus between the interest be....