TMI Blog2012 (6) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... d by assessee for the assessment year 2008-2009 against the order dated 30.08.2011 of Commissioner of Income Tax [Appeals] -V, Chennai. 2. In this appeal, the assessee has taken ten grounds of appeal. The crux of the issue involved in all the grounds of appeal taken by the assessee is that the ld. CIT(A) erred in confirming the disallowance of expenditure of Rs. 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 relation to the investments in question. The Assessing Officer did not accept the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D considers three circumstances under which disallowance is required to be made. Even at the risk of being repetitive these are mentioned as under: (I) The amount of expenditure directly relating to income which does not form part of total income; (II) Secondly, proportionate disallowance of interest which is not directly attributable to any particular income or receipt, and; (III) Thirdly, an amount equal to one-half percent of the average of the value of the investment, income from which does not form part of the total income , as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. The disallowance, as envisaged above, is aggregate of all the three. Therefore, there may not be any disallowance under (i) and (ii) above but still on facts of a case there can be disallowance under (iii) above. Now applying the facts of the case of the appellant to the above said three disallowances as per provisions of Rule 8D referred above, one can clearly rule out that disallowance is not called for as per (i) (ii) above as there is no direct interest expenditure for making investments during the year and the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant and hence the decisions relied on by the appellant are not 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 (iii) above, which in my considered opinion squarely applies to the facts of the case of the appellant. In view of the above discussion I find that the AO has rightly made disallowance of indirect expenses under (iii) above which he was also duty bound to consider in view of the mandate of section 14A read with Rule 8D in the right spirit of the interpretation by the Hon'ble C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Cheminvest Ltd. Vs. ITO 124 TTJ 577 [Del] [SB] has held that when investments are made which generate exempt income, then for disallowing expenditure u/s 14A it is not necessary that exempt income must have accrued to the assessee during the relevant previous year. In view of the above binding decision of the Special Bench of the Tribunal, we do not find merit in the arguments of the assessee that as there is no exempt income earned by the assessee during the year under consideration, therefore, disallowance of expenditure by invoking provisions of Rule 14A cannot be made. 13. However, we find that in the instant case, the Assessing Officer has not brought no material on record to show that the claim of the assessee that no actual expenditure was incurred in making investments in question was not correct. The Assessing Officer, without disputing the correctness of the claim of the assessee has invoked the provisions of Rule 8D. Sub-rule (1) of Rule 8D reads 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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