TaxTMI 
TaxTMI 
2022 (4) TMI 970
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....arious grounds on the issue of disallowance under Section 14A, therefore, the same are not repeated. 3. The facts in brief are that the assessee company is engaged in the business of providing finance to industry, trade, etc. through hire purchase, lease and loans. It has been registered as Non Banking Financial Company registered with the Reserve Bank of India. The ld. Assessing Officer noted that assessee had earned dividend income of Rs. 2,22,48,998/- and had disclosed investment of Rs. 63,66,00,000/- in shares as on 31.03.2014. In response to the show cause notice the assessee had filed detailed submissions, in sum and substance it was stated that, firstly, the dividend income had been earned by the investment made in the company which has been held for various years; secondly, assessee had also invested in mutual funds which were taxable; thirdly, all the investments had been made by the assessee out of its own funds and not borrowed funds, as own funds far exceeded the total investment to the tune of Rs. 556.07 crores as against the exempt income generating investments of Rs. 63.66 crores; and lastly, the assessee had itself worked out the disallowance to the amount of Rs.....
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.... of section is to compute the amount of expenditure, which is not allowable under Section 14A as it is relatable to the exempt income and not in considering all the expenses one by oen for ascertaining if either of them have resulted into exempt income and thereafter considering such amount as disallowable under Section 14A of I. Tax Act. " 5. Thereafter, Assessing Officer has computed the disallowance of Rs. 3,24,31,758/- which constituted disallowance under Rule 8D in so far as the disallowance under Rule 8D(2)(iii) being 0.5% of the average value of investment is not in dispute. 6. The ld. CIT (Appeals) has restricted the disallowance under Section 14A of the Act to the extent of exempt income earned, i.e., Rs. 2,22,48,998/-. 7. Before us the ld. Counsel submitted that, firstly, this issue stands covered by the decision of ITAT in assessee's own case for the assessment year 2008-09 wherein on similar facts and finding the Tribunal has deleted the disallowance of interest on the ground that assessee had huge surplus interest frère funds. Second line of his argument was that, nowhere the Assessing Officer has recorded any satisfaction that why the disallowance offe....
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....it is sine qua non that before invoking disallowance under Rule 8D, Assessing Officer to record satisfaction after examining the nature of expenditure debited and why the assessee's claim is not maintainable. Here in this case as is evident from the order Assessing Officer has nowhere records his satisfaction except for general remarks de-hors the facts of the case and explanation given by the assessee. He has not even examined that assessee had surplus funds which were interest free of more than Rs. 556.07 crores as against the exempt income earning investment of Rs. 63.66 crores. Thus, interest expenditure could not have been disallowed. Now in the latest judgement of Hon'ble Supreme Court in the case of South Indian Bank vs. CIT, 438 ITR 1, wherein it has been held that where assessee had interest free funds available which exceeds the investment made in tax free fund security then no interest expenditure can be disallowed and it has to be presumed that it is out of assessee's own fund and proportionate disallowance could not warrant under section 14A even where no separate accounts were maintained by the assessee and other expenditure made for earning tax free income. Hon'ble S....
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....Hon'ble Supreme Court in the case of Godrej & Boyce Manufacturing Ltd. (supra) has upheld the said proposition in the following manner:- "Sub-sections (2) and (3) of section 14A of the Act read with rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of section 14A(2) and (3) read with rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." 14. Similarly, the Hon'ble Jurisdictional High Court in the case of HT Media Ltd. (supra) had also reiter....