2017 (12) TMI 408

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....2. The Appellant, Assistant Commissioner of Income-tax, Circle 1 (1), Gurgaon (hereinafter referred to as 'the Revenue') by filing the present appeal sought to set aside the impugned order dated 16.12.2015 passed by the Commissioner of Income-tax (Appeals)-I, Gurgaon qua the assessment year 2011-12 on the grounds inter alia that :- "1. Ld. CIT(A) has erred in fact and in law by not appreciating the application of Rule 8D of the Income Tax Rules, 1961, so made by the A.O while making the disallowance u/s 14A of the Income Tax Act, 1961. 2. Ld.CIT(A) has erred in fact and in law by restricting the disallowance u/s 14A of Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 from Rs. 43,67,640/- to Rs. 68,433/-....

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....that none of the investment in the mutual fund has been made out of borrowed interest bearing funds. 5. Assessee carried the matter by way of filing appeal before the ld. CIT (A) who has restricted the addition of Rs. 43,67,640/- made by the AO under section 14A read with Rule 8D to Rs. 68,433/-. Feeling aggrieved, the Revenue as well as assessee company has come up before the Tribunal by way of filing appeal and cross objection respectively by challenging the impugned order passed by ld. CIT (A). 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 7. Undisp....

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.... substantiate his contention that the assessee company has substantial reserve and surplus fund as on 31.03.2011 drew our attention towards balance sheet wherein reserve and surplus funds and shareholder's funds / share capital are shown at Rs. 61,46,85,927/- and Rs. 25,00,000/- respectively as against investment of Rs. 14,99,25,994/- made on March 31, 2010. As per balance sheet available on record, no investment has been made as on March 31, 2011 meaning thereby, the entire investment on which the assessee company has earned dividend was of earlier year. 11. When the assessee company was having substantial reserves and surplus fund and shareholder's funds / share capital to the tune of Rs. 61,46,85,927/- and Rs. 25,00,000/- respectively....

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.... (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter....

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....ure by the AO to comply with the mandatory requirement of Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules and record his satisfaction as required thereunder, the question of applying Rule 8D (2) (iii) of the Rules did not arise. The question framed in ITA 549 of 2015 is answered accordingly." 16. Following the decision rendered by Hon'ble Apex Court in Godrej & Boyce Manufacture Company Ltd. (supra) and Hon'ble Delhi High Court in HT Media Ltd. (supra), we are of the considered view that the findings returned by AO that, "the claim of the assessee that the amount invested in mutual funds was only out of its own funds and no part of it was invested out of borrowed funds cannot be accepted, as entire money of a company i....