2022 (1) TMI 678

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....ome-tax Act, 1961 (-the Act") passed by the Assistant Commissioner of Income-tax, Central Circle Mysuru ("the learned AO") and the appellate order u/s 250 of the Act passed by the Commissioner of Income tax (Appeals)-11 ("the Ld CIT(A)") erred in law and in facts to make an addition in the assessment of income of the Appellant 2. The Ld AO erred and the Ld CIT(A) erred in affirming the assessment in violation of the provisions of section 132 and 153A of the Act and the assessment lacks jurisdiction in law. 3. The learned authorities below erred in observing: a. That the Ld AO/CIT(A) erred in disallowing an amount of Rs. 2.71,03,420/- as being interest attributable to the exempt dividend income which is amenable to disallowance u/s 14A under the Act. b. That the Ld AO/CIT(A) erred in disallowing an amount of Rs. 55.00,000/- as being interest expenses directly attributable to the earning of exempt dividend income and amenable to disallowing u/s 14A of the Act. 4. That the Ld authorities erred in applying section 14A of the Act without appreciating that a. The investments in SBI mutual funds are for the purpose of taxable income wh....

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....s of the Company. That the Bank did not charge any fee for the investments in the Mutual fund and hence no expense was incurred by the Company for such investments. c. The Company has not incurred any additional expenses towards the investments in Mutual Fund. The Id AO/CIT(A) also failed to identify any specific income which have even a remote connection d. The satisfaction recorded by the Ld AO is with a prejudged mind without the basis of any material / evidence in support of the conclusion e. The Ld AO erred in law and facts in invoking Rule 8D of the Income tax Rules and also erred in computing the amount of interest under Rule 8D of the Income tax Rules 7. The Ld authorities erred in not appreciating that the attribution of expenses for the purpose of section 14A disallowance is to be arrived only on basis of Net interest expenditure (after reducing the investment incomes) of the appellant. 8. The order of the learned AO is liable to be quashed for the reason that it is without establishing the jurisdiction as required for initiating assessment proceedings u/s 153A r/w 143(3) of the Act. 9. On the facts and circumstances o....

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....s. 3,26,03,420/- u/s 14A rwr 8D. 12. During appellate proceedings the appellant company failed to rebut findings of the AO. The appellant company failed to produce documentary evidence to support its contentions. The appellant company failed to substantiate its claims, It may be noted that no prudent business man or entity will make investments without applying resources wisely. Further if and when investment is made, it wilt definitely involve incurring administrative expenditure etc. Moreover the methodology of computing disallowance under Rule 8D shows that disallowance as contemplated is for both direct expenses as well as indirect expenses. Therefore, appellant cannot state that in the absence of expenditure (as claimed), no disallowance can be made u/s 14A. Sub section 3 of section 14A is clear that the section is applicable even in a case where appellant claims that no expenditure was incurred." Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before us now. 3. The Ld.AR submitted that disallowance u/s. 14A for AY 2013- 14 were on two accounts. a) Interest on borrowed funds allegedly used for earning exempt income and disallowance u/s 14....

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....earned 2009-10 2,01,500/- 2010-11 5,11,70,144/- 2011-12 47,41,68,210/- 2012-13 27,71,63,289/- 2013-14 1,51,44,574/- 7. Investment decisions are very complex and strategic which requires administrative support. Assessee would have incurred administrative expenses such as salary, wages, general expenses, stationery etc. Therefore, it cannot be said that no expenditure was incurred for making the said investments. Hence, we confirm the disallowance made by the Assessing Officer by invoking provisions of section 14A of the I.T. Act r.w. Rule 8D(2)(iii) of the I.T. Rules. 8. Insofar as the disallowance of indirect interest expenditure by invoking the provisions of section 14A of the I.T. Ac r.w. Rule 8D(2(ii) of the I.T. Rules, is concerned, the contention of the assessee is that it is having interest free funds in the form of reserves and advances from associate concern and no part of the interest bearing funds were diverted for making investments which had yield exempted income. However, this particular contention of the assessee was not demonstrated neither before the Assessing Officer nor before the CIT(A). Admittedly, interest on borrowed funds u....