2026 (4) TMI 811

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.... 3. Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority which was decided by Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. 4. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal. 1. In law and in the facts and circumstances of the Appellant's case, the learned CIT(A) has erred in confirming the disallowance u/s. 14A read with Rule 8D of the Act amounting to Rs. 96,05,518/- as per the provisions of section 14A of the Act when no such is disallowance is called for, without appreciating the facts of the case. 2. The appellant company craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. 5. Shri Biren Shah, the ld. A.R of the assessee explained that the assessee had suo moto made disallowance of Rs. 3,12,761/- u/s 14A of the Act, in respect of management fees, carpediem fund operating expense and demat charges. Further interest paid in respect of borrowed fund to the extent of Rs. 40,73,658/- was also disallowed by the assessee u/s 36 o....

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....owance of net interest expense, the Ld. SR-DR submitted that the decision of Hon'ble Gujarat High Court was given in the context of old provisions of Rule 8D(2)(ii), wherein disallowance of interest not directly attributable to any particular income or receipt was involved. He explained that, with the amendment of Rule 8D with effect from 02.06.2016, no disallowance on account of interest expenditure not directly attributable to any income or receipt, is now made. As per the revised Rule 8D only the expenditure directly attributable to the exempt income is required to be disallowed. The Ld. Sr. DR submitted that under the revised scheme of disallowance under Rule 8D, the decision of Hon'ble Gujarat High Court, as relied upon by the assessee, was no longer relevant. As regards disallowance of common expenses the Ld. Sr. DR supported the order of the AO and submitted that since the assessee was primarily engaged in investment activity, the AO had correctly made the proportionate disallowance of common expenses. 7. We have considered the rival submissions. We will first take up the issue of disallowance of interest expense. One of the contention of the assessee is that the AO was n....

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..... The clause (ii) of Rule 8D(2) was deleted vide amendment of the Rule with effect from 02.06.2016 and no disallowance under this clause is now required to be made. The Hon'ble High Court had given the decision while interpreting old Rule-8D(2)(ii), which is no longer on the statute. Therefore, the reliance of the assessee on the decision of Hon'ble Gujarat High Court vis-à-vis the old provision of Rule 8D(2)(ii) has become otiose. As per the amended Rule 8D, only the amount of expenditure directly relating to income, which does not form part of total income, is require disallowed. It is in this context that the assessee was required to explain the source of fresh investments made by the assessee during the year, which would result in earning of exempt income. 9. During the year the assessee had disclosed exempt income of Rs. 23,52,15,488/- the break-up of which was as under: Particulars of Income Amount (in Rs. ) Dividend from companies 23,04,40,344 Dividend from units 8,703 Business Income from Amplus-I 10(23FBB) 1,62,445 Total 23,52,15,488 As per provision of Rule 8D(1) of IT Rules, the amount of expenditure directly relating to income ....

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....uity instrument of Arvind Smartspaces Limited. The contention of the assessee is that the secured loan taken from Bajaj Finance Limited and ICD was utilised for advancing funds for painting business and to M/s. Amazon Textiles Pvt Ltd. However, no such investment is appearing in the balance sheet of the assessee. The total purchase disclosed in P&L account is Rs. 3.39 crores and increase in the closing stock during the year was to the extent of Rs. 1.52 crores only. Therefore, the entire borrowed funds couldn't have been utilized for painting business. In view of this factual position the contention of the assessee that loan of Rs. 33.50 crores from Bajaj Finance Limited and ICD of Rs. 9.81 crores was utilised for painting business and for advancing fund to Amazon Taxtiles Pvt Ltd. was not correct as no such advance was appearing in the balance sheet. Before us also no evidence in respect of any such advance has been brought on record. However, it is found from schedule 11 of the Balance-sheet that there was fresh "Advances for Leasing Right" to the extent of Rs. 30.09 crores and also fresh advance of "Other loans" of Rs. 2.91 crores. Considering this fact, the funds borrowed durin....