TaxTMI 
TaxTMI 
2018 (11) TMI 1865
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....of the provisions of sec. 14A of the Act, the AO called upon the assessee to show cause as to why disallowance of expenses incurred to earn tax free income should not be disallowed and added to the total income of the assessee. The assessee submitted that it had not incurred any expenditure to earn tax free income. The assessee submitted that investment in mutual funds which yielded tax free dividend income were made out of assesse's own funds and, therefore, no disallowance of interest expenditure debited in the profit and loss account can be made as per Rule 8D(2)(ii) of the Income-tax Rules 1962 (Rules). The assessee also submitted that there was no expenditure incurred directly or indirectly to earn the aforesaid exempt income and, therefore, no disallowance of other expenses should be made in terms of Rule 8D(2)(iii) of the Rules. The AO, however disallowed a sum of Rs. 2,07,62,657/- u/s 14A for the reason that the assessee failed to show as to how investments were made out of non interest bearing funds. The AO also held that other expenses have to be disallowed in view of the mandate u/s 14A r.w. Rule 8D of the Rules. The AO computed disallowance u/s 14A as follows:- ....
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.... submission dated 23/8/2017 and those are placed at pages 100 to 129 of the assessee's paper book. 5. The CIT(A) however confirmed the order of the AO by observing that the assessee did not provide any details called for by the AO. Following were relevant observation of the CIT(A)'s order: "In this context, it is noted that the appellant had not provided details as called for by the AO. The appellant merely shrugged off the matter by claiming that section 14A was not applicable. Therefore the AO's action of invoking Rule 8D and disallowing investments u/s 14A is found to be in order. Reliance is placed on the order of Hon'ble ITAT Mumbai in the case of Asha Lalit Kanodia Vs. Addl. CIT Range-12(2), Mumbai 2016 71 Taxmann.com 84 (Mumbai) Trib. dated 17th February 2016. In the cited case, the Hon'ble ITAT Mumbai held that where assessee claimed that no expenses were incurred to earn exempt dividend income , onus was on assessee to substantiate her claim with her accounts and on failure to do so, disallowance is to be made u/s 14A read with rule 8D. The ground fails. Disallowance is upheld," 6. Aggrieved by the order of the CIT(A), the assesee has preferred ....
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.... 2. The interest under section 234B is consequential in nature. 3. The Ld. AO has erred in levying interest under section 234C of the Act at Rs. 727,845 without appreciating the law that, interest under section 234C is levied only on returned income and not on assessed income." Revised Grounds of Appeal The grounds hereinafter taken by the Appellant are without prejudice to one another. 1 Disallowance of under section 14A of the Income-tax Act, 1961 ("Act") - Rs. 2,07,62,657 1.1 Non-applicability of section 14A 1.1.1 The Learned AO and Hon'ble CIT(A) has erred in law and facts by disallowing an amount of Rs. 20,762,657 under section 14A of the Act, read with Rule 8D of the Income-tax Rules, 1962 ("the Rules"). 1.1.2 The Learned AO and Hon'ble CIT(A) has erred in not relying on the judicial precedents wherein it was held that no disallowance is warranted under section 14A of the Act, if there is no actual expenditure incurred. 1.1.3 The Learned AO and Hon'ble CIT(A) ought to have appreciated that the interest cost on borrowed funds are not utilized for investment from which exempt income is ear....
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....erest u/s.234B and 234C of the Act, the same was not adjudicated by the CIT(A). It would be just appropriate for CIT(A) if the AO is directed to charge interest u/s 234B and 234C in accordance with law after due verification of facts and on proper application on the relevant statutory provision. 9. The main ground which needs to be adjudicated is ground No.1 raised by the assessee. As far as ground No. 1 of the assessee is concerned, it is clear that the CIT(A) has not taken note of the written submission filed by the assessee dated 23/8/2017 along with annexure. The ld counsel for the assessee by taking us through the relevant annexure to the written submission dated 23/8/2017 wanted to demonstrate that the borrowed funds on which interest was paid by the assessee was used only for the purpose of business and not to make investment which yielded the tax free income. The ld. DR pointed out that the documents which are annexure to written statement dated 23/8/2017 were not filed before the AO and the assessee therefore ought to have filed along with application for admission of additional evidence in terms of Rule 46A of the Rules. Since the Assessee has not made such applic....