TaxTMI 
TaxTMI 
2015 (11) TMI 1875
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....ssment Year on 29.09.2009 showing nil income. Thereafter, assessment proceedings were initiated during the course of which the Assessing Officer found that the assessee had made investments to the tune of Rs.6,06,48,305/- in shares of group companies and earned dividend income of Rs. 9,23,630/-. Ld. Assessing Officer by applying the provisions of section 14A read with rule 8D computed the disallowance of expenses incurred for the purpose of earning exempt income amounting to Rs. 24,53,928/- as follows: Amount (Rs.) Disallowance as per 8D(ii) 21,50,686 Disallowance as per 8D(iii) 3,03, 242 Total 24, 53, 928 3. Aggrieved by the same the assessee filed appeal before the Ld. CIT(A) who vide his order dated 06.0....
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.... is not legally sustainable. However, keeping into view the entirety of circumstances the disallowance u/s 14A is restricted to dividend income credited in the P&L account to the tune of Rs. 9,23,660/- as held by the Hon'ble ITAT Chandigarh Bench in the case of Punjab State Coop & Marketing Federation Ltd. in ITA no.548/Chd/2011. 4. Aggrieved by the same the revenue filed appeal before us against the relief provided to the assessee to the extent of Rs. 15,30,268/-while the assessee is in appeal against the disallowance of Rs. 9,23,660/- upheld by the CIT(A) u/s 14A of the Income Tax Act, 1961 5. We have heard the rival submissions carefully and perused the materials on record placed before us. 6. At the outset it is stated that the....
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....Rs. 9,23,630/- was earned by the assessee on these investments during the impugned Assessment Year. Further, interest expenses incurred during the year by the assessee amounted to Rs. 99,71,495/-. Ld. Assessing Officer disallowed interest expenses of Rs. 21,50,686/- by computing the same as per Rule 8D(ii) of the Income Tax Rules. In the backdrop of the above facts we shall proceed to now deal with the issue at hand. Under the provisions of section 14A of the Income Tax Act, all expenses incurred in relation to incomes which are exempt from tax is to be disallowed. The machinery provision for calculating the amount of disallowable expenditure is provided u/s 14A(2) read with Rule 8D of the Income Tax Rules 1962. As per rule 8D, expenses ....
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....ng the same before the lower authorities. The Ld. CIT(A) after perusing the chart has also given a factual finding on this aspect at para 5 of his order wherein it was found by the Ld. CIT(A) that there was huge amount of cash profits in all the years. We find that this fact has remained uncontroverted by the Revenue. In such circumstances, we concur with the findings of the Ld. CIT(A), that the entire interest expenditure cannot be indirectly related to investments in exempt assets. We further find no infirmity in the order of the Ld. CIT(A) restricting the disallowance u/s 14A to the extent of exempt income earned amounting to Rs. 9,23,660/- following the decision of the Hon'ble ITAT Chandigarh Bench in the case of Punjab State Coop. &....
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....ed not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub Section(2) to Section 14 A of the Act and sub Rule (1) to Rule 8 D of the Rules." 9. In the present case, the AO has not firstly disclosed why the appellant / assessee's claim for attributing Rs. 2,97,440/- as a disallowance under Section 14 A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim of explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed ....