TaxTMI 
TaxTMI 
2022 (1) TMI 678
X X X X Extracts X X X X
X X X X Extracts X X X X
....ddition made u/s 14A of the I.T.Act r.w.Rule 8D of the I.T. Rules. The Ld.AR argued the issues based on the facts for A.Y: 2013-14. For sake of convenience, grounds raised by assessee for assessment year 2013-14 are reproduced hereunder: "We submit the following grounds of appeal which are without prejudice to each other: 1. The order u/s Section 143(3) read with 153A of the Income-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 CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. This test of attribution has not been passed before invoking provisions of section 14A of the Act. 5. The Ld authorities erred in disallowing the interest of Rs. 2,71,03,420/- u/s 14A of the Act on the following grounds: a. The Company has surplus investible funds from internal accruals and used interest free own funds for investments in the Mutual funds b. The Company has not borrowed funds from the bank for making investments in Mutual funds c. The Company has not incurred any interest expenditure towards the investments in Mutual funds 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 R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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 of the case, the learned AO erred in levying the interest under Section 234A, Section 234B and Section 234C of the Act. 10. Without prejudice, the AO has erred in levying interest without giving an opportunity of being heard to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isions of section 14A r.w. Rule 8D. Aggrieved by the order of Ld.AO, the assessee filed appeal before Ld.CIT(A). The Ld.CIT(A) observed as under: "11. Perusal of assessment order shows that AO had delved into the case minute detail. The AO has left no stone unturned to prove the section 14A needs to be invoked. The assessment order is elaborate and detailed in bringing out the fact that appellant's balance shoot revealed considerable movement in investment portfolios and mutual fund investments The AC) held that such investments and activities will entail expenditure direct or indirect. Hence the AO disallowed Rs. 3,26,03,420/- u/s 14A rwr 8D. 12. During appellate proceedings the appellant company failed to rebut findings of the AO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpt income and all other interest towards term loans / vehicle loans etc., do not have any nexus with the investments from mutual funds that have generated exempt dividend income. 4.1 The Ld.AR submitted that, undisputedly the letter of credit was opened by the bank towards import of goods where the bank would make the payment to the overseas suppliers and then grant the finance which is called the 'supplier's credit'. It is also an undisputed fact that investments in mutual funds were granted as security to the bank against the letter of credit that was opened in favour of assessee, based on which the bank granted LC and made payments to the assessee's suppliers. He has brought to our notice the observation by the Ld.AO that the funds wer....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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 ....