TaxTMI 
TaxTMI 
2017 (9) TMI 1583
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....has erred both on facts and in law in confirming the order of the Assessing Officer rejecting the contention of the assessee that in the absence of any live nexus between the expenditure incurred and the tax free income not forming part of total income, the assessment is bad in law and as such the assessment is illegal and liable to be quashed so. 3.(i) On the facts and circumstances of the case, learned CIT (A) has erred both on facts and in law in confirming the additions of Rs. 25,68,356/- made by AO on account of disallowance of expenses u/s 14A to earn tax free income. (ii) That the above said additions has been confirmed ignoring the fact that no opportunity was provided to the appellant before making the disallowance. 2. The brief facts of the case are that the assessee is a cooperative Bank registered with Registrar of Cooperative Society with GNCT, Delhi and carrying on business of bank under license from Reserve Bank of India. The main source of income of the assessee bank was from interest on loans and deposits of members, interest on deposits with other banks and other investments. The assessee filed return of income declaring an income of Rs. 9,76,04,457/-. Th....
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.... 11,98,356/- Lac on IIFCL Bonds and IRFC Bonds respectively and claimed both as tax free interest u/s 10. The appellant bank is a financial institution duly licensed by the Reserve Bank of India, borrowing of funds and lending of funds is its main business. Funds invested by the public are sanctioned/ disbursed to its members in the shape of various types of short term/long term loans and surplus funds are time to time invested with other financial institutions in the shape of short term/long term as per the prudential norms of the RBI for investments of funds. Investment in Bonds and securities etc. is part of the working capital of the appellant. The appellant has not incurred any expenditure, of what so ever natures, on the investment of captioned tax free bonds and receipt of interest thereon. The merchant bankers collected the application from the office of the appellant and interest is directly credited to their bank account through RTGS/NEFT. There are no direct or indirect administrative expenses of what so ever nature against the receipt of this tax free interest. The appellant has invested in the Tax Free Bonds from its own interest free funds and its working cap....
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....pt income and the following case laws directly supports the contention of the appellant, that when the appellant has invested from its own interest free funds and also there is no nexus between the expenditure not directly connected with the exempt income, disallowance u/s 14A is ruled out. a). In the case of Delhi Towers Ltd. v. DCIT (2017) 163 ITD 124, (A/Y 2009-10) the ITAT Delhi has held: On facts, there was no fresh investment made by assesses during year under consideration and tax free dividend income had been earned from old investments, disallowance made by Assessing Officer was directed to be deleted. b). The Hon'ble Delhi High Court in the case of Maxopp Investments Ltd. V. CIT [2011 (11) TMI 267 has held: That by virtue of the provisions of Section 14A(2) & 14A(3) of the Act, if the Assessing Officer is not satisfied by the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon the determination of the amount of expenditure in accordance with Rule 8D. While rejecting the claim of the assessee, the Assessing Officer has to render cogent reasons for the same. In a case where the ass....
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....nected with the exempt income cannot be disallowed" f) In case of DCIT vs. Ashish Jhunjhunwala (ITAT Kolkata) (J. K, Investors (Bombay) followed) AY 2009-10, it was held: The AO has not brought on record anything which proves that there is any expenditure incurred towards earning of dividend income. The AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. The AO has not considered the claim of the assessee and straight away embarked upon computing disallowance u/r 8D. This is not permissible. g) In case of DLF Southern Towns Pvt. Ltd. vs. DCIT - (2015) 45 CCH 0028, ITAT Delhi, it was held: Where the assessee had not claimed any expenditure for earning exempt income in the Profit and Loss account and the AO had not recorded any satisfaction as to why he was not satisfied with the claim of the assessee that no expenses were incurred for exempt income....