2018 (6) TMI 1237

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....No.52/Bang/2013 for A.Y. 2009-10 which was filed by the Assessee, M/s. Chaitanya Properties Pvt. Ltd., V/s. Joint Commissioner of Income Tax [OSD], Bengaluru. 2. The alleged substantial question of law sought to be raised by the present appellants is actually covered by two decisions of this Court on the issue of disallowance of expenditure incurred by the Assessee to earn exempted income under Section 14A of the Act read with Rule 8D of the Rules. 3. The relevant findings and reasons given by the learned Tribunal to hold in favour of the Assessee that the disallowance to the extent of Rs. 1,93,730/- could not be made by the Assessing Authority to earn exempted income by way of dividends from equity shares of Andhra Bank to the extent....

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....t the assessee has had to suffer a disallowance of Rs. 1,93,730/- as expenditure incurred on earning the exempt income of Rs. 18,400. 6.3.4 In this context, the learned Authorised Representative placed reliance upon the decision of the Hon'ble ITAT, Mumbai Bench in the case of J.M. Financial Ltd., V/s. Addl. CIT in ITA No.4521/Mum/2012 dated 26.03.2014. The learned Authorised Representative submitted that in this order the Tribunal has held that where the investment is made in sister / associate concerns, it is so made for the purpose of having control or for business purposes and not with a view to earn dividend income from such investments and therefore it cannot be said that the assessee is incurring administrative expenses to m....

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....including the judicial pronouncements placed reliance upon by the assessee. The Hon'ble Delhi High Court in the case of Maxopp Investments Ltd., V/s. CIT reported in 347 ITR 272 has held that by virtue of the provisions of sub-section (2) and (3) of Section 14A 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 assessee states that no expenditure has been incurred by it to earn exempt income, the Assessi....

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....bs Ltd., [2016] 383 ITR 490 (Karn). "39. Aggrieved by the order of CIT(A), the assessee has raised ground No.2. 40. We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee's paperbook and the same is enclosed as ANNEXURE-III to this order. It is clear from the said statement that the availability of profit, share capital and reserves & surplus was much more than investments made by the assessee which could yield tax free income. 41. The Hon'ble Bombay High Court in Reliance Utilities & Power Ltd. 313 ITR 340 (Bom) has held that where the interest free funds far exceed the value of investments, it should be consider....

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....te authorities leaves much to the desired and the same cannot be sustained and therefore the matter deserves to be remanded back to the Assessing Authority. 14. We make it clear that the expenditure for earning exempted income has to have a reasonable proportion to the income, so earned, going by the common financial prudence. Therefore, even if the Assessing Authority has to make an estimate of such an expenditure incurred to earn exempted income, it has to have a rational nexus with the amount of income earned itself. Disallowance under Section 14A of Rs. 2,48,85,000/- as expenses to earn exempted Dividend income of Rs. 1,80,30,965/- is per se absurd and hypothetical. The disallowance under Section 8D cannot exceed the expenses c....