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TMI Blog2012 (6) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 38,15,247/-. 3. At the outset, we would like to state here that the ld. CIT(A) in the appeal of the assessee has confirmed the disallowance of expenditure of Rs. 37,87,800/- and has deleted the disallowance of interest of Rs. 27,447/-made u/s 14Aof the Act. Therefore, the grievance of the assessee which remains to be adjudicated by us is with regard to disallowance of expenditure of Rs. 37,87,800/-. 4. Brief facts of the case are that the Assessing Officer found that the assessee had made investment of Rs. 101,56,27,000/- and corresponding investment as on 31.3.2007 were at Rs. 49,94,93,000/- which shows a considerable increase in the investment in the year under consideration. The assessee submitted that no expenditure was incurred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no longer valid in view of the decision of Hon'ble ITAT Delhi (Special Bench) in the case of Cheminvest Ltd vs. Income Tax Officer 124 TTJ 577 (Del) (SB) wherein by drawing analogy from the decision of Hon'ble Supreme Court in the case of Rajendra Prasad Moody 115 ITR 522 it was held that the Supreme Court held that interest on monies borrowed for purchase of shares was allowable as a deduction u/s 57 (iii) irrespective of whether or not there is any yield of dividend to the assessee. It was held that the words "expenditure incurred for making or earning the income" in s. 57(iii) did not mean that income actually had to be earned for the allowability of the expenditure. The converse of this principle is now applicable. i.e. s. 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. However, the disallowance made at Rs. 27,447/- as per (ii) above by the AO is unwarranted and not justified as the entire interest cost of Rs. 49,260/- (discussed above) pertains to Hire Purchase loan. Therefore, I direct the AO to delete this disallowance of Rs. 27,447/-. The moot question is whether there is a case for disallowance as per (iii) above. To examine this aspect the assessment records were called for and the study of the Balance sheet of the appellant company reveal that the "investments" portfolio of the appellant company is quite proactive as per figures given in the balance sheet. (Amount in Rupees) (Amount in Rupees) As on 31.3.2008 As on 31.3.2007 Remarks Total of Assets (A) [As pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly applicable on the facts of its case. In the case of appellant company, investment constitute major activity and is gaining more prominence over the years and hence substantial management and administrative cost requires to be apportioned attributable to that activity. The "sky rocketing" of managerial remuneration in corporate sector underscores the point that management decisions have high costs and if "investment decisions" constitute the major activity of an enterprise, substantial cost normally is required to be attributed to such activity. However, the legislation, in its wisdom, to avoid 'hair splitting' and to put rest to this issue has provided for disallowance @ 0.5% of the average of the value of the investment as in (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which income is not taxable. He also observed that in the immediately preceding year, such investments were to the tune of Rs. 49,94,93,000/-. Therefore, substantial investment of about Rs. 52 crores was made by the assessee during the year under consideration. Further, the assessee claimed no expenditure was incurred in relation to such investment. The Assessing Officer, therefore, invoking the provisions of Rule 8D of the Rules r.w.s 14A of the Act disallowed 0.5% of the average investment which worked out to Rs. 37,87,800/- and disallowed the same. On appeal, the ld. CIT(A) confirmed the above action of the Assessing Officer. 10. Before us, the ld. A.R. of the assessee submitted that no exempt income was earned during the year and no e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year is not satisfied with (a) The correctness of the claim of expenditure made by the assessee or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2)." 14. Thus it is observed that for determining the amount disallowable as per provisions of Rule 8D(2) the condition precedent is that the Assessing Officer must come to a conclusion having regard to the accounts of the assessee that claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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