TaxTMI 
TaxTMI 
2018 (10) TMI 492
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....l, which are without prejudice to each other: 1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law & facts of the case and therefore needs to be suitably modified. It is submitted that it be so held now. 2. The learned C1T(A) erred in law and on facts in upholding the action of the A.O. in applying Rule 8D of the Income Tax Rules, 1962 and thereby confirming additional disallowance of Rs. 65,26,522/- under section 14A of the Act. In the facts & circumstances of the case it is submitted that no disallowance u/s 14A is required to be made. It is submitted that it be so held now. 2.1 The learned CIT(A) erred in law in confirming the computation of disallowance of interest of Rs. 61,50,642/- and indirect administrative expenditure of Rs. 3,75,880/-" by the A.O. as per the method prescribed in Rule 8D r.w.s. 14A(2) of the Act despite the fact that the A.O. had not recorded any satisfaction as required by Section 14A of the Act, regarding correctness of disallowance worked by the appellant in the return of income. It is submitted that it be so held now. 2.2 The learned CIT(A) erred on facts and in law in holding ....
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....restricting the amount of disallowance under Section 14A of the Act read with Rule 8D of the Rules to the extent of the exempt income amounting to Rs. 42,23,519/- as claimed in the return of income.lt is submitted that it be so held now. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal." 3. The grievance of the assessee in ground no. 2 is that Ld CIT(A) erred in confirming the disallowance made by the AO u/s 14A r.w.r. 8D for Rs. 65,26,522/- only. 4. Briefly stated facts are that the assessee is a limited company and engaged in the business of providing financial assistance to the enterprises of Gujarat Government. The assessee is also registered as NBFC with RBI. The assessee during the year has earned dividend income of Rs. 42,23,519/- which was claimed as exempted u/s 10(34)/10(35) of the Act. The assessee in respect of such income has made disallowance of Rs. 2,19,585/- only. However, the AO was of the view that the disallowance needs to be made as per the provisions of Section 14A r.w.r. 8D of Income Tax Rule 1963. Accordingly, a showcause notice was issued to the assessee for making the disal....
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....A r.w.r. 8D and added back to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that its own fund exceeds the amount of investment therefore no disallowance of interest can be made. 5.1 Similarly, the assessee submitted about the administration expenses that it has already disallowed 1% of total operating expenses in view of the order of ITAT pertaining to the A.Y. 2001-02 in its own case. However, Ld. CIT(A) disregarded the contentions of the assessee and confirmed the order of AO by observing as under: "5.2 I have considered the assessment order and the submissions made by the appellant. The A.O has held that the appellant was not able to explain the nexus of interest free funds with the investment made by it. On the other hand, it was submitted by the appellant that it had sufficient funds of its own which far exceeded the investment in tax free income and hence it could not be said that borrowed funds had been used for purpose of making these investments It is seen that the appellant's contention that the AO had not recorded his satisfaction about why he was not accepting t....
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....hat certain administrative expenses have to be apportioned towards earning of tax free income. The disallowance of Rs. 349242/- made by the assessee will not suffice. We find that the total administrative expenses claimed in the statement of total income are at Rs. 3.50 crores. In our considered opinion, at least 10% of such expenditure should be apportioned towards earning of exempt income. Therefore, a disallowance of Rs. 35 lacs should meet the ends of justice. We accordingly direct the A.O. to restrict the disallowance at Rs. 35 lacs. This ground alongwith all its sub ground and the additional ground are treated as partly allowed." 8. We have heard the rival contentions and perused the materials available on record. As regards the disallowance of interest expenses, we find that the own fund of the assessee exceeds the amount of investment. Therefore no disallowance on account of interest expenses can be made. In this regard, we find support and guidance from the order of this Tribunal in the own case of the assessee in ITA No.1478/Ahd/2013 where the addition on account of interest expenses was deleted by holding as under: "10. We have given a thoughtful consideratio....
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....ount of interest expenditure." In view of above, we hold that the disallowance of interest expenses in the given facts and circumstances are not warranted. 9. Coming to administrative expenses, we note that the AO in his assessment order has made the disallowances of Rs. 3,75,880/- only. Therefore, in our considered view the disallowance on account of administrative expenses cannot exceed the said amount. It is because, the ITAT has no power to enhance the income computed by the AO or improve the case of the AO. In this regard, we find support and guidance from the judgment of Hon'ble Madras High Court in the case of Sanmar Speciality Chemicals Ltd. Vs. ITO reported in 93 taxmann.com 330 wherein it was held as under: "The operative portion of the judgment reads as follows: "6.In the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC) this Court has held that under s.33(4) of the IT Act, 1922 [equivalent to s.254(1) of the 1961 Act]. The Tribunal was not authorized to take back the benefit granted to the assessee by the AO. The Tribunal has no power to enhance the assessment. Applying the ratio of the said judgment to the present case, we are of the v....