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2014 (8) TMI 1249 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Primary contention raised by the assessee is that AO had not recorded his non-satisfaction on its claim that no expenditure was incurred by it for earning tax free income - HELD THAT - What we note is that assessee had not made any disallowance by itself u/s 14A in its return of income. During the course of assessment through its letter dated 26/7/2011 it did raise a contention on these lines and relevant part has been reproduced by us at para six above. It had given a break-up of the interest as well claiming a part thereof to be for its business leaving a balance on which it was undecided. A reading of the above reply itself would show that assessee was not convinced by its own stand that no expenditure was incurred in relation to the money put in tax free investment. Even in a case where the AO rejects the claim of the assessee that no expenses were incurred to earn the exempt income it is not mandatory for him to invoke the method of calculation prescribed by Rule 8D(2) of the Rules and is free to make the disallowance on any reasonable basis. The plea of the assessee that applying the Rule 8D blindly by the AO will lead to absurd results in our view is without any basis because while examining the claim of the assessee regarding expenditure incurred in earning the exempt income including a claim that no expenses were incurred the AO is bound to take note of such absurdities and refrain from invoking the method of disallowance of expenses as prescribed by Rule 8D(2) of the Rules. In other words it is only when no reasonable and proper parameters for making disallowance can be arrived at that resort to Rule 8D(2) can be had by the AO. Rule 8D(2) will thus be a last resort when it becomes impossible to arrive at a just conclusion on the amount of expenses that has to be disallowed as attributable or incurred in earning exempt income. Here on the other hand it is a disallowance under rule 8D(2)(ii) and not 8D(2)(iii). Assessee has raised no grievance on the disallowance under rule 8D(2)(iii) either before CIT(A) or us. Hence this case in our opinion will not be of help to the assessee. Interest free own funds were there to cover the investments - Assessee has not been able to show that no part of the working capital loans raised by it at Bangalore were used for making tax free investment. On the other it is by itself not sure whether any part of the working capital was used for such investment. Thus its claim that interest free own funds alone were used for making tax free investments is oppugnant to the admission before the CIT(A). The often quoted principle viz. alligus contaria non-est audientus has to apply. As for the decision of HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT relied on by the AR in the first place it was a Bank and investments were made out of pooled funds. Here on the other hand by assessee s own admission at least a part of its investment had gone out of the working capital loan and hence not pooled funds. Hence in our opinion this contention also has no merits. Bifurcation of gross interest is required to be made between those directly attributable to business and those not so attributable before applying Rule 8D does in our opinion needs attention - Clearly interest expenditure not attributable to any particular income or receipt can be considered for apportionment under rule 8D(2)(ii). Nevertheless the assessee had given submissions supporting its claim that part of interest was on term loans working capital directly relatable to its business only before CIT(A). Neither CIT(A) nor AO had verified the work out furnished by the assessee. Therefore the aspect of quantification of disallowance required to be made under 8D(2)(ii) does require a fresh look by the AO. Hence we set aside the orders of the lower authorities for the limited aspect of the quantification of disallowance required under rule 8D(2)(ii) and remit it back to the AO for working it out afresh after hearing the assessee. Interest addition - no interest was charged on loans and advances given by it - HELD THAT - There cannot be any dispute that at least share capital and reserves are own funds of the assessee. Not only had assessee own funds well covering the loans and advances but in the previous year the advances had gone down. In none of the earlier assessment year viz. by 2003-04 2004-05, 2005-06, 2006-07, 2007-08 2008-09 were any disallowance for interest on loans for non-business purpose made. As for the decision of the Hon ble P H High Court in Abhishek Industries Ltd 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT this was followed by the very same High Court while confirming a similar disallowance in the case of Munilal Sales Corpn 2006 (10) TMI 89 - PUNJAB AND HARYANA HIGH COURT Hon ble Apex Court reversed the latter 2008 (2) TMI 19 - SUPREME COURT and hence judgment in Abhishek Industries Ltd. will not further revenue s case any way. On the other hand assessee is well supported by the decision of Reliance Utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT as well as Hon ble Gujarat High Court in the case of Raghuvir Synthetics Ltd 2013 (7) TMI 806 - GUJARAT HIGH COURT We thus do not find any reason to interfere with the order of the CIT(A) in this regard. In the result ground 4 of the revenue is dismissed.
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