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2017 (9) TMI 243 - AT - Income TaxAddition u/s 14A - expenditure incurred for earning exempt income namely dividend - proof of having own funds - Held that:- When we peruse the availability of funds with the assessee company as on 31.03.2001 in the light of its investment, it goes to prove that the assessee has made investment for earning exempt income during the year under assessment was ₹ 9,04,03,525/- as against the total investment of ₹ 33,65,81,747/-. Assessee was having own funds of ₹ 34,44,42,623/- which are otherwise more than total investment made by the assessee company to the tune of ₹ 33,65,81,747/- Hon’ble Supreme Court in case of M/s. Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT & Anr.(2017 (5) TMI 403 - SUPREME COURT OF INDIA) (SC) affirmed Bombay High Court in Godrej & Boyce Manufacturing Company Ltd. by “explaining the procedure for calculation of disallowance u/s 14A of the Act whereby the condition precedent is expenditure sought to be allowed need actually be incurred for earning dividend income.” So, in these circumstances, the ld. CIT (A) has rightly deleted the addition as the entire investment made by the assessee for earning exempt income was out of free funds available with it. Even otherwise, Rule 8D section 14A is effective from AY 2008-09. So, we find no illegality or perversity in the findings returned by ld. CIT (A) for AY 2001-02. In AY 2006-07 CIT (A) restricted the addition of ₹ 1,91,93,084/- to ₹ 70,69,155/- made by the AO in mechanical manner. As in view of the law laid down by the Hon’ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. (supra) when the assessee has interest free reserves to the tune of ₹ 35,32,74,483/- and disallowance made by the AO is not proved to be expenses incurred for the purpose of earning dividend income as the entire investment has been made out of interest free funds available with the assessee, no ground is made out to interfere into the findings returned by ld. CIT (A) to that extent.- Decided in favor of assessee.
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