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2016 (3) TMI 233 - AT - Income TaxDisallowance u/s 14A - Held that:- Hon'ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT ] has laid down the proposition that, if the assessee's capital, profits, reserves and surplus and current account deposits are higher than the investments in tax free securities, then it would be presumed that the investments made by the assessee would be out of interest free funds available with the assessee. Respectfully following the decision of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra) we concur with the contention of the assessee that no disallowance of interest can be made u/s 14A r.w. Rule 8D of the Act. Otherwise also Ld. Counsel has specifically pointed out before us, the source of investments, which were from interest free funds. Thus, on these facts also, no disallowance of interest can be made. Coming to the indirect expenses, we find that assessee has debited sum of ₹ 8.92 crores on the ‘employees costs’ which majorly constituted “salary” of the employees. As pointed out by the Ld. Senior Counsel, the only activity in relation to the investment carried out by the assessee was Switching of one HSBC Mutual Fund account to Reliance Mutual Fund account. Thus, if at all any indirect expenses is to be attributable, then same has to be estimated having regard to the accounts and nature of expenditure incurred by the assessee. The blanket application of Rule 8D(iii) that is 0.5% of the average investment may not be acquired to do so because it is not commensurate with the nature of activity of investment carried out and the expenses debited by the assessee which is mostly for its business activities. Looking to the fact that the assessee has earned dividend income of ₹ 38.19 lakhs, we estimate the indirect expenses at ₹ 5 lakhs which in our opinion, is still on a higher side, but it will take into account all other indirect expenses. Thus, the disallowance u/s 14A is restricted to ₹ 5 lakh and balance addition made by the AO and confirmed by the CIT(A) stands deleted - Decided partly in favour of assessee
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