2018 (6) TMI 1469

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....The Deputy Commissioner of Income Tax vs. M/s. Advaith Motors Pvt. Ltd.,) for the A.Y.2011-12 on 30.10.2015. 2. The questions involved before the learned Tribunal was regarding the disallowance of expenditure in the form of expenses incurred by the assessee for earning the income by way of Dividends, which is exempt from tax to the extent of Rs. 3,90,135/-.The question whether disallowance in terms of Section 14A of the Act r/w 8D of the Rules could exceed the expenditure computed under Rule-8D of the Rules by the assessee to the extent of Rs. 56,55,867/-. 3. The Assessing Authority disallowed the expenditure to the extent of Rs. 1,27,36,398/- but the learned Tribunal upheld the order of the 1st Appellate Authority namely, Commissione....

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....40 (Bom) has held that where the interest free funds far exceed the value of investments, it should be considered that investments have been made out of interest free funds and no disallowance u/s. 14A towards any interest expenditure can be made. This view was again confirmed by the Hon'ble Bombay High Court in CIT v. HDFC Bank Ltd., ITA No.330 of 2012, judgment dated 23.7.14, wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax free securities, no disallowance of interest expenditure u/s. 14A can be made. 42. In the light of above said decisions, we are of the view that disallowance of interest expenses in the present case of Rs. 49,42,....

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....ed 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 claimed by assessee under the Proviso to Rule 8D. Therefore, where the assessee claimed that assessee did not incur any such expenditure during the year in question to earn Dividends of Rs. 1,80,30,965/-, the burden was upon the assessing authority to compute the interest on such borrowed funds which were dedicatedly used for investment in securities to earn such exempted Dividend income. The disallowance under Section 14A cannot be a wild guesswork bereft of ground realities. It has to have a reasonable and close nexus....