TaxTMI 
TaxTMI 
2022 (1) TMI 140
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....w.r 8D of the Act on the facts and circumstances of the case. 3. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the provisions of section 14A of the Act are not automatic and the learned Assessing Officer is not justified in summarily resorting to application of Rule 8D of the Rules. 4. The learned Commissioner of Income-tax (Appeals) failed to appreciate the ground of the appellant that the learned Assessing Officer having failed to conduct an examination of the books of -account and derive satisfaction in negative on the claim of the Appellant that no expenditure has been incurred towards earning any exempt income. disallowance made is not sustainable in law. 5. The learned Commissioner of Income-tax (Appeals) failed to appreciate that since the Appellant used its own funds for the purpose of making the investment, the question of disallowance of any by invoking section 14A of the Act does not arise. 6. The learned Commissioner of Income-tax (Appeals) failed to appreciate that since no expenditure has in fact been incurred by the Appellant during the impugned period, disallowance made under section 14A r.w.r 8D is a ....
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....roceeded merely on assumptions, surmises and conjectures. The AO failed to appreciate the above and erroneously invoked the rigors of Rule 8D, despite having not found anything in the accounts of the assessee to suggest that expenditure was indeed incurred by the assessee. 6. Reliance is placed on the following decisions:- * Relaxo Footwears Ltd. v. ACIT reported in 50 SOT 102 (Delhi); * Priya Exhibitors (P) Ltd. v. ACIT reported in 54 SOT 356 (Delhi); * DCIT vs. Ashish Jhunjhunwala- ITA No.1890/Ko1/2012 (Kolkata Bench ITAT); * Kalyani Steels Ltd. v. Addl.CIT - ITA No.1733/PN/2012 (Pune Bench-B, ITAT); * REI Agro Ltd., v. DCIT reported in 160 TTJ 107 (Kolkata); * ACIT v. Magarpatta Township Development & Construction Co.Ltd. - [20141 46 taxrnann.com 284 (Pune) 7. The Hon'ble Punjab and Haryana High court in the case of CIT v. Hero Cycles Limited reported in 323 ITR 518 (P&H) has held that disallowance under section 14A requires finding of incurring of expenditure and where it is found that no expenditure has been incurred, disallowance under section 14A cannot stand and in CIT v. Deepak Mittal reported in 361 ITR 131 h....
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....invoking the provisions of Section 14A of the Act and Rule 8D of the Rules and making the disallowance of an amount of Rs. 60,30,758/- on the facts and circumstances of case. 11. The ld. AR drew our attention to the judgment of the Hon'ble Bombay High Court in the case of CIT v. Sociedade De Fomento Industrial (P.) Ltd., 429 ITR 207 (Bom) wherein it was held that where assessee invested certain own funds in exempted categories such as mutual funds and earned income and, had not incurred any expenditure in earning said income, assessee would be entitled to exemption under section 14A, read with rule 8D. In Maxopp Investment Ltd. v. CIT, 402 ITR 640 (SC) it was held as under:- "41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfacti....
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.... the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." (3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. 15. The stand of the assessee is that the disallowance under Rule 8D(2)(iii) shall be equal only to the actual expenditure incurred and in this regard the AO cannot apply the above formula automatically. However, in our opinion, as is evident from a reading of the Rule 8D(2)(iii) of the I.T. Rules, the AO has to apply the formula prescribed under the said Rule for the purpose of computation of expenditure incurred in earning of exempt income and the author....
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.... will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt. Therefore it is not only the interest directly attributable to tax exempt income i.e., under Rule 8D(2)(i), but also directly relatable to taxable income which has to be excluded from the definition of variable 'A' in the formula as per Rule 8D(2)(ii) and rightly so, because it is only then that common interest expenses which are to be allocated as indirectly relatable to taxable income and tax exempt income can be computed. This is clear from the following observations :- "60. In the affidavit in reply that has been filed on behalf of the revenue an Explanation has been provided of the rationale underlying rule 8D. In the written submissions which have been filed by the Additional Solicitor General it has been stated, with reference to rule 8D(2)(ii) that since funds are fungible, it would be difficult to allocate the actual quantum of borrowed funds that have been used for making tax-free investments. It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of int....