2017 (5) TMI 1160

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....hether the Tribunal erred in law and on facts in deleting the disallowance of expenditure of Rs. 39,48,81,350/= incurred towards foreign exchange gain ?" 2. Facts leading to the present Appeal in nutshell are as under :- 2.1 That the assessee filed return for A.Y 2010-2011. That the Assessing Officer made disallowance of expenditure in respect of interest and administrative expenses of Rs. 54,39,916/= under Section 14A of the Income-tax Act, 1961. The Assessing Officer also made disallowance of expenditure of Rs. 39,48,81,350/= incurred towards Foreign Exchange gain. 3. Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer in making the aforesaid disallowances, the assessee preferred appeal before the learned CIT [A]. The learned CIT [A] confirmed the disallowance of expenditure in respect of interest and administrative expenses of Rs. 54,39,916/= under Section 14A of the Act, however, deleted disallowance of expenditure of Rs. 39,48,81,350/= incurred towards Foreign Exchange gain. 4. Feeling aggrieved and dissatisfied with the order passed by the learned CIT [A], both the Revenue as well as assessee preferred appeals before the learned Tribunal. Th....

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....ing the disallowance under Section 14A of the Act and thereafter to determine the expenses in respect of interest and administrative expenses of Rs. 54,39,916/= under Section 14A of the Act read with Rule 8D. The relevant observations made by the learned Tribunal, while deleting the disallowance of expenditure in respect of interest and administrative expenses in respect of interest and administrative expenses, read as under :- "36. We have duly considered rival contentions. As far as the proposition of the learned CIT-DR that even in the absence of any mechanism for disallowance, the expenditure, which is attributable to earning of exempt income can be worked out on estimate basis or reasonableness basis after looking into the facts and circumstances of a particular case is concerned, we do not have any dispute. The amounts can be disallowed on estimate basis. In the present appeals, the assessee itself has made disallowance of Rs. 5.10 lakhs in the Asstt. Year 2009-2010, and Rs. 52,000/= in the A.Y 2010- 11. In the A.Y 2009-2010, the exempt income is of Rs. 2.02 Crores whereas in the A.Y 2010- 2011, it is Rs. 22.50 lakhs. Before embarking upon the facts of the present case, we d....

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....k upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same." 37. According to the Hon'ble Delhi High Court, when an assessee demonstrate actual incurrence of the expenditure, then Rule 8D would not be automatically applied without looking into the explanations. In other words, when an assessee has worked out the expenditure relatable to earning of exempt income on actual basis and demonstrated to the AO the incurrence of such expenditure, then AO record a....

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....ommensurate with the administrative expenses which might be attributable to earning exempt income. Because, on interest expenses account, there cannot be any disallowance as the assessee has far more interest free fund than investment. We are of the view that the learned CIT [A] has looked into all these aspects in the A.Y 2009-2010 before deleting the disallowance. We do not find any error in the order of the learned CIT [A] on this issue in A.Y 2009-10. Consequently, we allow the ground of appeal raised by the assessee in the A.Y 2010- 2011 and delete the disallowance made by the A.O." 9. Considering the aforesaid facts and circumstances, more particularly the fact that the assessee was already having its own surplus fund and that too to the extent of Rs. 2319.17 Crores against which investment was made of Rs. 111.09 Crores, there was no question of making any disallowance of expenditure in respect of interest and administrative expenses under Section 14A of the Act, therefore, there was no question of any estimation of expenditure in respect of interest and administrative expenses of Rs. 54,39,916/= under rule 8D of the Rules. Under the circumstances and in the facts of the ca....