TaxTMI 
TaxTMI 
2025 (2) TMI 1348
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.... disallowance of expenses, incurred by the assessee allegedly for earning exempt income,made in terms of section 14A of the Act, amounting to Rs. 4,70,331/-. The facts relating to the issue being that the assessee was noted to have earned exempt income of Rs. 22,44,171/- and to have made suo moto disallowance of expenses for the purpose of earning the exempt income under section 14A of the Act amounting to Rs. 3,69,059/-. The assessee was asked to justify the suo moto disallowance made. Due reply was furnished by the assessee. The AO not being satisfied with the reply of the assessee, invoked Rule 8D of the Income Tax Rules, 1962 for the purpose of computing the quantum of disallowance and worked out the same to be Rs. 8,39,390/-. Since the assessee had suo moto made disallowance of Rs. 3,69,059/-, the balance amount of Rs. 4,70,331/- was further disallowed by the AO and added to the income of the assessee under section 14A of the Act. The same was confirmed by the ld.CIT(A). 4. The contention of the ld.counsel for the assessee before us was that the disallowance made was not as per the law because since the AO had invoked Rule 8D of the Rules for the purpose of computing the....
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.... of its own fund and not out of borrowed funds, and therefore, there was no question for disallowing any interest income incurred for the purpose of making the impugned investments. 7. As for the administrative expenses incurred by the assessee, he contended, the assessee had sufficiently demonstrated the basis for making such disallowance, being salary of three employees involved in the financial and commercial department, basing the quantum of time devoted for making investments and 25% of other expenses. His contention was that the assessee having demonstrated suitably the basis for disallowance of expenses, the AO had to record objective dissatisfaction with the same, pointing out as to why more expenses need to be disallowed. 8. The ld.DR, however, pointed out that the AO did record his dissatisfaction and drew our attention to this fact noted by the ld.CIT(A) also at page no.36 to 37 of his order as under: The provisions of Rule 8D read with the provisions of section 14(2) clearly mandate that it would be applicable and arise when the assessing officer is not satisfied with the claim of the expenditure made by the assessee in relation to income which does not f....
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....otal income of the assessee. Hence, the claim of assessee for the above issue is not allowed and the same is added to the income returned by the assessee." It is clear that the AO had recorded the reason as to why he was not satisfied with the explanation of the Appellant and then only he had taken the route of Rule 8D. The AO was correct in applying rule 8D while framing the assessment order since the appellant has failed to furnish the details of fund utilized for making such investment whether those from loans and on its own funds before the AO. The appellant had not kept the funds in separate accounts in the process of utilization, but the same is mixed & in a general pool of funds. The appellant has not been able to demonstrate whether the cash flow has been utilized to incur expenses in relation to exempt income or taxable income section 14A, includes that the appellant has to allocate both direct & indirect expenses for the exempt income, which has not been done. 5 »r J Where Assessing Officer having regard to the volume of investment in shares and quantum of dividend income, earned thereon, invoked provisions of Rule 8D of 1962 Rule....
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....Act. The Hon'ble apex court in the case of South India Bank Ltd. vs CIT C.A.No.9606 of 2011 & Others dt 09-Sept 2021 that where there are mixed funds of the assessee and the own funds of the assessee are sufficient for making investment no disallowance of interest u/s 14A of the Act is warranted. Therefore, the dissatisfaction recorded by the AO with respect to financial expenses not disallowed by the assessee, we find is not correct. As for the dissatisfaction recorded by the AO with respect to the other expenses, the same, we find, is just a cursory dissatisfaction noted by him. The assessee has given the basis for allocating a certain percentage of expenses by way of salary and other expenses incurred for the purpose of earning exempt income while the AO has given no reasons to disbelieve the same from the accounts of the assessee. 11. In view of the same, we have no hesitation in holding that the computation of disallowance in the present case under section 14A of the Act by invoking Rule 8D of the IT Rules was not in accordance with law. The disallowance, therefore, made amounting to Rs. 4,70,331/- is directed to be deleted. Ground No.1 raised by the assessee is allowed.....
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....ated 26.11.2024, notes that the ld.counsel for the assessee filed a screen-shot of the status of the return filed for the impugned year, which showed the return to be under processing and no intimation made under section 143(1)(a) of the Act. But despite so, the ld.DR was given further opportunity to inform the Bench, whether any intimation had been made under section 143(1) of the Act. Finally, when the matter came up before us today, the ld.DR expressed her inability to confirm the said fact. 15. Having noted so, we further record the other arguments of the ld.counsel for the assessee on the merit of the addition made, which was to the effect that the assessee had itself added liabilities which had ceased to exist, in terms of provisions of section 41(1) of the Act to its income reflected in the financial statement of the assessee itself, in its P&L account, and therefore, the income returned by the assessee of Rs. 141.18 crores included liability returned back to the tune of Rs. 45.97 lakhs. In this regard, he drew our attention to the financial statements of the assessee for the impugned year, more particularly, note no.28 to the audited financial statements, being revenue f....