AI Drafter 
TaxTMI 
TaxTMI 
2021 (9) TMI 1031
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....1590/Bang/2017 for Asst.Year 2010-2011. Accordingly, this appeal is dismissed as not pressed. 3. The grounds raised by the Revenue in ITA No.1592/Bang/2017 for Asst.Year 2011-2012, read as follows:- "1. Whether on facts and in circumstances of the case and in law, the CIT(A) was justified in not applying the provisions of Rule 8D2(ii) after upholding the applicability of section 14A. 2. Whether on facts and in circumstances of the case and in law, the CIT(A) was justified in partly allowing the disallowance made by the AO without arriving at the reconciliation of interest to be considered for the purpose of disallowance u/s 14A. 3. Whether the CIT(A) is justified in modifying the disallowance made u/s 14A of the I.T.Act, 1961 when assessee has deficit of own funds for application towards investments in income exempt from tax. 4. Any other grounds which may by urged at the time of hearing." 4. The grounds raised by the assessee in ITA No.1589/ Bang/2017 for Asst. Year 2011-2012, read as follows:- 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabi....
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....s have been made and the income from which is claimed as exempt u/s 10 of the IT Act as clearly stated in the financial statements of the appellant for the concerned AY 2010-11, are prejudicial against the appellant to raise huge demand. 9. The learned AO and the Hon'ble CIT[A) failed to note the cross charges of expenditure made by the appellant in the financial statements in respect of the entitles in which investments are made by the appellant. Hence the question of invoking the provisions of Section 14A DOES NOT ARISE because heading of the section 14A states "Expenditure incurred in relation to income not includible in total income." 10. In respect of the question of validity of the proceedings u/s 153A, the Hon'ble CIT[A) in his order has taken cognisance of the decision of the Hon'ble Karnataka High Court in an earlier case "Canara Housing Development Co - 62 Taxmann.com 250 [Kar)" 11. The above cited case law was pertaining to the orders passed by the CIT u/s 263 in respect of one of the Group entities of the appellant and not with regard to proceedings u/s 153A. 12. The Hon'ble CIT[A) has IGNORED the orders of the Hon'....
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.... for tax. As such the Assessing Officer invoked the provisions of section 14A r.w. Rule 8D and computed the disallowance as follows:- Rule 8D(2)(i) Nil Rule 8D(2)(ii) Rs. 36,38,84,940 Rule 8D(2)(iii) Rs. 3,57,62,950 7. On appeal, the CIT(A) sustained the above amount, by observing as under:- Non convertible debenture-I Kotak Rs. 8,49,86,300 Non convertible debenture-II Kotak Rs. 2,07,94,640 Kotak Mahindra Term loan Rs. 1,60,80,833 ICICI Bank term loan Rs. 4,74,18,684 Saraswat Bank term loan Rs. 21,73,43,110 Reliance Capital vehicle loan Rs. 3,222 SBI vehicle loan Rs. 72,607 Kotak Mahindra Vehicle loan Rs. 1,06,517 Saraswat Bank OD Rs. 33,46,534 Total Rs. 39,01,50,234 "As seen above, the term loans (project specific loans), vehicle loans are clearly for the purpose of business and hence should not be considered for computation of disallowance u/s 14A r.w.r 8D(2)(ii). Only the interest paid on Non convertible debenture (Kotak) and Bank OD interest should be considered for the computation of disallowance u/s 14A r.w.r 8D(2)(ii) as there is no clear nexus with business. There is a jump in investme....
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.... 41. The Hon'ble Bombay High Court in Reliance Utilities & Power Ltd. 313 ITR 340 (Bom) has held that where the interest free funds far exceed the value of investments, it should be considered that investments have been made out of interest free funds and no disallowance u/s. 14A towards any interest expenditure can be made. This view was again confirmed by the Hon'ble Bombay High Court in CIT v. HDFC Bank Ltd., ITA No.330 of 2012, judgment dated 23.7.14, wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax free securities, no disallowance of interest expenditure u/s. 14A can be made. 42. In the light of above said decisions, we are of the view that disallowance of interest expenses in the present case of Rs. 49,42,473 made under Rule 8D(2)(ii) of the I.T. Rules should be deleted. We order accordingly." Thereafter, it was held by Hon'ble Karnataka High Court as under:- "The aforesaid shows that the Tribunal has followed a decision of the Bombay High Court in the case of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505/226 Taxman 132 (Mag.)/49 taxmann.com 335 . ....
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....ture. Accordingly, we are of the view that a lumpsum disallowance of Rs. 15 lakhs may be made out of general expenditure and the same, in our view would meet the requirements of section 14A of the Act. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to restrict the disallowance under 14A of the Act to Rs. 15 lakhs. 9. The Ld. A.R. submitted that he will not press cross objection, if disallowance u/s 14A of the Act is made on a reasonable figure. However, we notice that the cross objection filed by the assessee is delayed by more than a year. We notice that the assessee has not filed any petition for condoning the delay. Hence, the cross objection filed by the assessee is liable to be dismissed in limine. Accordingly, we decline to admit the cross objection filed by the assessee. 9.1 Further, in assessment year 2014-2015, similar issue came up for consideration before the Tribunal in ITA No.284/ Bang/2020 and the Tribunal vide order dated 24.06.2020, held as under:- 6. We have heard the rival contentions and perused the records. The ground nos. 1, 2, 3, 5, 8 and 9 are general in nature. Ground no.4 is related to non-rec....
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....n (ITA No.3002/Ahd/2009 dated 25- 05-2012) and identical contentions made by the assessee were rejected by holding that, once the share income is excluded from the total income u/s 10(2A) of the Act, the provisions of section 14A of the Act would apply to it. Hence, this contention of the assessee would fail. 9. The next contention urged by the assessee is a partner in many firms. Some firms have earned profit and other firms have incurred loss. She submitted that the A.O. has considered only "share of profit received from partnership firm" for the purposes of sec.14A and did not consider "share of loss divided to the assessee". The Ld A.R submitted that the share of profit/loss from partnership firms should be cumulated and in that case, net result would be only loss from the partnership firms. Hence the AO should have ignored the share of profit received from some of the firms for the purposes of computing disallowance under sec.14A of the Act. We do not find any merit in this contention of the assessee, since what is exempted under the Act is share income received from the partnership firm u/s 10(2A) of the Act, meaning thereby, the profit or loss received from the part....
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....4A cannot exceed amount of exempt income. The assessee relied upon case laws in support of its arguments. We find that the Hon'ble Delhi High Court in the case of Joint Investments (P.) Ltd. (supra) held that the window for dis allowance is indicated in section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to tax exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. We further notice that the Hon'ble Delhi High Court in the case of CIT v. Holcim India (P.) Ltd. (2014) 272 CTR 282 (Delhi) has held that there can be no dis allowance under section 14A in the absence of exempt income. The rationale behind these judgments is that the amount of disallowance cannot exceed exempt income. In this case, on perusal of the facts, we find that the assessee has earned exempt income of Rs. 24,138, whereas the assessing officer disallowed an amount of Rs. 3,36,28,000. Therefore, considering the facts and circumstances of the case and also following the ratios of the case laws discussed above, we are of the view that dis allowance under section 14A cannot exceed the exe....