TaxTMI 
TaxTMI 
2019 (1) TMI 942
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....d in the circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to restrict the disallowance u/s 14A of the IT Act to Rs. 3,09,246/- overlooking the fact that the investments of the assessee in its sister concerns also needs to be considered while working out disallowance u.s14A r.w. Rule 8D(2)(iii). 2. On the facts and in the circumstances of the case and in law, the Ld.ClT(A) erred in directing to delete the disallowance of Rs. 3,88,66,536/- u/s. 14A of the IT Act made while computing the Book Profit as per Section 115JB of the Act. The assessee has filed cross-objections against the same for both the years. The registry has noted a delay of 107 days in filing of the cross-objections, the condonation of which has been sought by the assessee on the strength of pleadings dated 06/08/2018. The delay has been attributed to the fact that the relief was already granted to the assessee in the impugned order and therefore, Form 36 and grounds of appeal filed by the revenue were kept in the regular file without realizing further course of action. However, later on, upon due consideration of the same by assessee's consultant, the cross objection has been filed. Fi....
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.... office expenses, rent has been allocated on the basis of proportion of cost of the said employee in total employee cost. The assessee defended its method vide submissions dated 20/03/2015, inter-alia, by contending that 14A disallowance was not applicable to shares held as stock-in-trade and as strategic investments and further, only net interest expenditure was to be considered for the purpose of computing the disallowance. It was further contended that no borrowed funds were used by the assessee in making the investments since own funds were sufficient to meet the investments and therefore, disallowance offered by the assessee was justified. However, not convinced, Ld. AO, applying Rule 8D, worked out aggregate disallowance of Rs. 391.75 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs. 304.71 Lacs and expense disallowance u/r 8D(2)(iii) for Rs. 87.04 Lacs. After adjusting the suo-moto disallowance of Rs. 3.09 Lacs already offered by the assessee, net disallowance thus worked out to Rs. 388.66 Lacs which was added while computing income under normal provisions as well as u/s 115JB. 3.1 Aggrieved, the assessee agitated the same with partial success before L....
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....ich yielded any exempt income during the year and therefore, no disallowance was warranted u/s 14A. Keeping in view the same, the additional disallowance of Rs. 388.66 Lacs as computed by Ld. AO was deleted. Aggrieved, the revenue is in further appeal before us. 4. The Ld. Authorized Representative for Assessee [AR], Shri Vijay Mehta, at the outset submitted that there was no proper satisfaction reached upon by Ld. AO as envisaged by Section 14A read with Rule 8D before proceeding to apply Rule 8D having regards to the accounts of the assessee and therefore, the disallowance made by Ld. AO could not be sustained. Reliance has been placed on various other conclusions drawn by first appellate authority in the impugned order while deleting the disallowance. Per Contra, Ld. Departmental Representative [DR], Shri D.G.Pansari submitted that computations were mandatorily required to be made as per Rule 8D and therefore, the stand of Ld. AO was justified. 5. We have carefully heard the rival submissions and perused relevant material on record including judicial pronouncements cited before us. Upon due consideration, we find that the assessee has made suo-moto disallowance u/s 14A for Rs.....
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....im, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 38. In the present case, we do not find any mention of the reasons which had prevailed upon the Assessing Officer, while dealing with the Assessment Year 2002-2003, to hold that the claims of the Assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed and the dividend income received. That any part of the borrowings of the assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available (Rs. 270.51 crores as on 1.4.2001 and Rs. 280.64 crores as on 31.3.2002) remains unproved by any material whatsoever. While ....
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....count. 6. Another important fact as noted by first appellate authority is that the opening as well as closing investments held by the assessee has not yielded any exempt income during the impugned AY and therefore, the computations as envisaged by Rule 8D would result into nil disallowance and therefore, the disallowance could not be sustained from this angle also. The said observation is in tune with the decision of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415] whereas it has been held that for the purpose of computing disallowance, only those investments which yielded exempt income during impugned AY were to be considered. Therefore, the disallowance deserves to be deleted on this account also. Another factor that goes in assessee's favor is the uncontroverted fact that own interest free funds in the shape of share capital and reserves far exceeded the investments made by the assessee and therefore, a presumption was drawn in assessee's favor that the investments were funded out of own funds rather than out of borrowed funds and therefore, no interest disallowance was called for under the circumstances. Viewed from any angle....
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....d by law before proceeding to apply the provisions of Rule 8D. The assessee had offered suo-moto disallowance of Rs. 9.23 Lacs and Ld. AO, without rejecting the same, computed disallowance as per Rule 8D which could not be said to be in line with the provisions of law. Therefore, our observations, decision, conclusion mutatis mutandis apply to this AY also. Resultantly, the disallowance sustained by Ld. AO as well as Ld. CIT(A) could not be upheld. The Ld. AO is directed to accept the disallowance of Rs. 9.23 Lacs offered by the assessee in the computation of income. This ground of revenue's appeal stands dismissed whereas the assessee's cross-objections succeeds. 9.1 In this AY, the revenue has also contested the deletion of addition of Rs. 175.59 Lacs on account of marked to market losses [MTM] on account of trading in future contracts in derivative segment. Facts qua the same are that the assessee claimed the aforesaid loss on marked to market of open contracts in equity index / stock future but the profits against the same was not recognized on the basis of prudence principle. The Ld. AO disallowed the same by holding that derivative contracts were not accounted for in the boo....