TaxTMI 
TaxTMI 
2018 (3) TMI 466
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.... the purpose the company has made investment of Rs. 1,12,62,25,693/-. It was also noticed that the company has paid interest amounting to Rs. 4,85,07,256/-. The AO has asked the assessee to furnish the details of exempt income and expenditure pertaining to earning of the exempt income. After considering the reply of the assessee, AO observed that the estimation made by the assessee is not satisfactory and acceptable and held that Rule 8D of Income tax Rules 1962 is squarely applicable to the assessee. Accordingly, the AO has disallowed an amount of Rs. 2,76,36,280/- u/s 14A of Income tax Act, 1961 (in short "Act") r.w.s. Rule 8D of the Income Tax Rules. The assessee contested the disallowance before Ld.CIT(A). 3. Ld.CIT(A) held that the assessee has suo motto made the disallowance and based on the judgement in the case of CIT-I Ludhiana v Abhishek Industries [2015] (2) TM-1, 672 (P&H), ITA No.320 of 2013 dated 27.01.2015 has deleted the addition. 4. Aggrieved with the deletion, the Revenue filed an appeal before ITAT. 5. During hearing before us, Ld.DR reiterated the facts and relied on the assessment order. Regarding the satisfaction to be recorded u/s 14A(2), Ld.DR argue....
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....y Division N-Sure Division Windmill Division Total Strategic Investments in unlisted shares of subsidiaries and associate companies 76.59 0 0 76.59 Debt oriented mutual funds-Dividend Plan 10.76 0 0 10.76 Debt oriented mutual funds-Growth Plan 0 21.21 0 21.21 Investment in alternative investment plans 0 1.06 0 1.06 Equity oriented mutual funds-Growth Option 0 4.72 0 4.72 Total 87.35 26.99 0 114.34 9. It was further argued by Ld.AR that as far as Rs. 10.76 crores of investments in debt oriented mutual funds-dividend plans is concerned, an amount of Rs. 6.66 lakhs has been disallowed suo motto against the exempt income and Rs. 26.20 lakhs. He further argued that regarding the investment made by N-Sure Division of Rs. 27 crores, a sum of Rs. 21.21 crores is invested in debt oriented mutual funds-growth option income of which is taxable; Out of the balance investments, the assessee has earned dividend income of Rs. 24.15 lakhs and exempt capital loss of Rs. 5.01 lakhs. The assessee has suo-motto disallowed a sum of Rs. 25.7 lakhs constituting management fees paid for investments ....
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....s are neither perverse nor arbitrary and, therefore, do not call for interference." (b) CIT V / s. Deepak Mittal 361 ITR 131 (P /H) The High court has held that AO couldn't apply Rule 8D blindly despite assessee's contentions that no expenditure was incurred to earn exempt income, by referring to the decision in the case of CIT v /s Hero Cycles Ltd [2010] 323 ITR 518/189 Taxman 50 (Punjab. & Haryana) has held that "the contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed under Section 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of Section 14A, cannot be accepted. Disallowance under Section 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under Section 14A cannot stand. In the present case finding on this aspect, against the revenue, is not shown to be perverse. Consequently, disallowance is not permissible." (c) ACIT v Bharat Hotels Ltd, ITAT Delhi, ITA No 4959/Del/2012 & 5401/Del/2013 decided on 29/....
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....) of the Act cannot be worked out unless and until it is established that certain expenditures are incurred by the assessee in these investments. (f) Joint Investments (P) Ltd. V Is. CIT ( ITA No 117/2015) (Delhi High Court). Para 9 on page 3 of the order reads as under:- "The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case." (g) Daga Global Chemicals. ITA No. 5592/Mum/2012 decided on 1/1/2015 Disallowance uls 14A read with Rule 80 cannot exceed the exempt income claimed. (h) DCM Ltd v DCIT. ITA No. 4467 & 5176/Del12012....