2019 (6) TMI 34

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.... 1961 (for short "the Act") r/w rule 8D of the Income Tax Rules, 1962. 3. Brief facts are, the assessee, a company, is engaged in the business of trading in iron ore, metals and commodities. For the assessment year under dispute, the assessee filed its return of income on 21st November 2014, declaring total income of Rs. 1,55,60,400. In the course of assessment proceedings, the Assessing Officer on verifying the materials on record, noticed that the assessee had invested Rs. 66,07,87,447, in non-current investment and earned dividend income of Rs. 38,900, which was claimed as exempt. Whereas, the assessee has made a disallowance of Rs. 6,165, towards expenditure attributable to earning of exempt income. Therefore, the Assessing Officer cal....

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....th the assessee by way of capital and reserve amounting to Rs. 92.30 crore, the investment amounted to Rs. 66.07 crore. Thus, he submitted, the disallowance of interest expenditure under Rule-8D(2)(ii) is unsustainable. In support of his contention, he relied upon the following decisions:- i) CIT v/s HDFC Bank Ltd., [2014] 366 ITR 505 (Bom.); ii) HDFC Bank Ltd. v/s DCIT, [2016] 383 ITR 529 (Bom.); and iii) CIT v/s SBI DHFL Ltd., [2015] 376 ITR 296 (Bom.). 6. As regards disallowance of administrative expenditure under Rule-8D(2)(iii), the learned Authorised Representative submitted, only those investments yielding exempt income during the year can be included in the average value of investment for computing disallowance under Rule-8D(....

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.... is evident, the assessee had sufficient surplus funds available with it to make the investment in shares, mutual funds, etc. That being the case, no disallowance of interest expenditure under Rule-8D(2)(ii) could have been made. As regards the disallowance of administrative expenditure, under Rule-8D(2)((iii), it is the contention of the assessee from the assessment stage itself that the investment on which the assessee had earned dividend income of Rs. 38,900, is Rs. 5,39,000. The aforesaid fact has not been controverted by the Departmental Authorities. Now it is well settled that while computing disallowance under rule 8D(2)(iii), the Assessing Officer can consider only those investments which have yielded dividend income during the year....

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....disallowed interest expenditure of Rs. 12,03,782, under section 36(1)(iii) of the Act. Though, the assessee challenged the aforesaid disallowance before learned Commissioner (Appeals), however, he sustained the disallowance made by the Assessing Officer. 13. The learned Authorised Representative submitted, since the assessee had sufficient interest free funds available with it, presumption would be that the investments made in jewellery and shares were out of such funds. Therefore, no disallowance under section 36(1)(iii) could be made. In support of such contention, he relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utility and Power Ltd., [2005] 313 ITR 340 (Bom.) and the decision of the Hon'....