TaxTMI 
TaxTMI 
2023 (12) TMI 35
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....record shows that the AO had taken into account the balance sheets of financial years (FY) ending on 31.03.2010 and 31.03.2011. A comparison of the information embedded in the said balance sheets revealed to the AO that the investments made by the respondent/assessee in equity shares at the beginning of the period in issue i.e., FY 2010-11 (AY 2011-12) was Rs. 2,73,331.69 lakhs. It also revealed that at the end of said FY, the investments fell to Rs. 1,78,239.36 lakhs. 4.1 Based on this, the AO applied the provisions of Rule 8D(2)(ii) and (iii). Accordingly, under Rule 8D(2)(ii), Rs. 6,946.01 lakhs was disallowed towards interest expenditure, while Rs. 1,128.93 lakhs was disallowed as administrative expenses that would possibly have been incurred to earn exempt income by taking recourse to Rule 8D(2)(iii) read with Section 14A of the Act. In sum, the total amount disallowed by the AO was Rs. 80,66,72,112/, after deducting the suo motu disallowance made by the respondent/assessee amounting to Rs. 8,21,883/-. 5. The record discloses that the respondent/assessee carried the matter, in appeal, to the Commissioner of Income Tax (Appeals) [in short, "CIT(A)"]. The CIT(A) deleted th....
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....pellant/revenue. It is against this backdrop that the appellant/revenue has preferred the instant appeal. 8. The Tribunal ruled in favour of the respondent/assessee, and thus, deleted the entire addition made by the AO, as noticed above, amounting to Rs. 80,66,72,112/-. The Tribunal has, broadly, given the following reasons for deleting the addition made by AO under Section 14A read with Rule 8D of the Income-tax Rules, 1962: (i) First, AO has not disputed the claim made by the respondent/assessee that it had interest-free funds to make investments in the AY in issue. (ii) Second, the AO had not recorded his dissatisfaction or given reasons concerning the incorrectness of the computation made by the respondent/assessee under Section 14A. (iii) Third, AO has not recorded his dissatisfaction as to the incorrectness of the claim of the respondent/assessee that it has not it had not incurred any expenditure towards earning interest-free income. 9. In other words, the Tribunal concluded that the respondent/assessee had sufficient interest-free funds available with it to make investments in the AY in issue, insofar as the first aspect is concerned. In sup....
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....00,000/- and Rs. 100,75,00,000/-, respectively. However, the change vis-à-vis the other companies is reflected hereafter: Party Amount of Investments as of 31/03/2011 Amount of Investments as of 31/03/2010 EIH Limited Rs. 1,43,56,625/- Rs. 2,15,17,000/- Galaxy Mercantiles Limited Rs. 70,94,93,400/- Rs. 83,90,41,500/- Reliance Communication Limited Rs. 80,16,000/- Rs. 1,36,56,000/- Kotak Mutual Fund - - 15. The argument, therefore, advanced by Ms Jha was that a substantial part of the exempt dividend income i.e., Rs. 70,950,000/- out of Rs. 71,71,43,933/- was on account of investment made in the preceding period, and therefore, in substance, no substantial expenses had been incurred to earn the said exempt dividend income. 16. Furthermore, Ms Jha's contends that apart from the reason given by the Tribunal, that the respondent/assessee had available with it interest-free funds more than the investment made, the AO should have indicated its dissatisfaction as to why the suo motu disallowance made by the respondent/assessee, amounting to Rs. 8,21,883/-, was not tenable, having regard to its accounts. 17. According to Ms Jha, ....
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....ee claims that no expenditure has been incurred by him concerning income that doesn't form part of the total income under the Act. 13. Therefore, what emerges is, if the assessee claims a certain amount of expenditure was incurred by him to earn the income which does not form part of the total income, the AO is required to examine the accounts, and thus, satisfy himself as to the correctness of the claim made by the assessee about the expenditure incurred in that regard. It is when an AO is not satisfied as to the correctness of the claim made by the assessee, about the expenditure said to have been incurred by him on such income which does not form part of the total income under the Act, he then proceeds to determine the amount of expenditure, by following such method as is prescribed, i.e., Rule 8D of the Rules. 13.1. This methodology, as envisaged under Rule 8D of the Rules, is required to be followed even where the assessee claims that no expenditure was incurred by him concerning income which does not form part of the total income under the Act. 13.2. The approach of the Tribunal has been that, since a disallowance was made, it follows logically, tha....