2018 (1) TMI 1629

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.... question of law: " Whether in the facts and circumstances of the case, the learned ITAT was justified in upholding the disallowance under Section 14A by applying the rule 8D without any rhyme and reason when undisputedly the assessee has reserves and surplus far in excess of the investment made in the year during the relevant assessment year?" 3. This Court while admitting ITA No.326/2017 on 10.11.2017 framed following substantial question of law: " Whether in the facts and circumstances of the case, the learned ITAT was justified in upholding the disallowance under Section 14A by applying the rule 8D without any rhyme and reason when undisputedly the assessee has reserves and surplus far in excess of the investment ma....

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....ur in respect of the Assessment Years 1998-1999, 1999-2000 and 2001- 2002. Earlier to the introduction of Subsections (2) and (3) of Section 14A of the Act, such a determination was required to be made by the Assessing Officer in his best judgment. In all the aforesaid assessment years referred to above it was held that the Revenue had failed to establish any nexus between the expenditure disallowed and the earning of the dividend income in question. In the appeals arising out of the assessments made for some of the assessment years the aforesaid question was specifically looked into from the standpoint of the requirements of the provisions of Subsections (2) and (3) of Section 14A of the Act which had by then been brought into force. It is....

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....e 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 it is true that the principle of res ....