2017 (5) TMI 582

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....961 which (in short, "the Act") against the order dated 19.10.2015, Annexure A.III, passed by the Income Tax Appellate Tribunal, Division Bench, Chandigarh (in short, "the Tribunal") in ITA No. 236/Chd/2015, for the assessment year 2010-11, claiming following substantial questions of law. "(i) Whether on the facts and in the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal, Division Bench, Chandigarh has erred in law in deleting the entire addition of Rs. 84,00,560/- made by the AO under Section 14A of the Income Tax Act, 1961 which was confirmed by the CIT(A) to the extent of Rs. 23,16,000/- without appreciating the specific findings of the AO as well as of the CIT(A) that the assessee had not been able to substantiate....

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....of income. The assessee was asked by the Assessing Officer to show cause as to why disallowance of proportionate expenses as per Rule 8D of the Income Tax Rules, 1962 (in short, "the Rules") be not made. The assessee did not file any reply. Thus, in accordance with the Rule 8D of the Rules, read with Section 14A of the Act, the disallowance was worked out at Rs. 84,00,560/- which was disallowed and added back to the income of the assessee under Section 14A of the Act. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 18.12.2014, Annexure, A.II, the CIT(A) restricted the disallowance of Rs. 84,00,560/- to the extent of the exempted income of Rs. 23,16,000/-. Not sa....

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....led by the assessee and dismissed the one filed by the revenue, deleting the entire addition made by the Assessing Officer under Section 14A of the Act. The categorical finding recorded by the Tribunal is that the investment in the earlier year was of Rs. 63,30,41,000/-. At the end of the current year, the amount came to Rs. 67,50,41,000/-. Thus, the increase of Rs. 4,20,00,000/- was on account of transfer of share application money to share allotment. The investments were made in the earlier year and no new investment had been made in the current year. Thus, it was concluded that the investments made in the earlier year were made out of own funds of the assessee and no borrowed funds were used for such investments. It was further recorded ....

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....hich was not there in the preceding year, which further goes to prove that the interest paid during the year does not have any nexus to the investments and thus no tax free income from these investments was earned. Therefore, any disallowance of interest expenditure being related to earning tax-free income cannot be made in this case. 8. There is no need to go further on the issue of disallowance of interest part of the expenses related to earning tax free income, as from the explanation and evidences brought on record by the assessee, as stated hereinabove, it is proved beyond doubt that the interest expenditure incurred by the assessee during the year does not have any nexus to earning of tax-free income. Relying on the judgment of the H....