TMI Blog2014 (3) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... dend income. None of the lower authorities have objectively pointed out any fault in this working - They have addressed the issue only on the basis of interest which is not attributable or apportionable in view of above findings – thus, the suo motu working of assessee is reasonable in disallowance qua sec. 14A - CIT(A) should not have sustained the disallowance by recoursing to rule 8D(2)(iii) - When the interest component is not disputed towards acquisition of business assets, the application of rule 8D(2)(iii) does not arise - CIT(A) was not justified in upholding the disallowance and sending it to AO for verifications – Decided in favour of Assessee. - ITA No. 819/Del/2012, ITA No. 1149/Del/2012 - - - Dated:- 28-2-2014 - Shri R. P. Tolani And Shri T. S. Kapoor,JJ. For the Petitioner : Shri Tarandeep Singh CA For the Respondent : Ms. Ashima Neb Sr. DR ORDER Per R. P. Tolani, J. M: These are cross appeals, filed by the assessee as well as the revenue assailing the order of CIT(A)-XVII, New Delhi dated 19-12-2011 on respective grievances pertaining to A.Y. 2008-09. 2. One common ground in both the appeals pertains to disallowance u/s 14A. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng dividend on mutual funds). Therefore, Rule 8D of Income Tax Rules is not applicable. Please note that company used its idle share capital and reserves for investment in the mutual funds. 4.2. The assessee filed following break up of interest expenses of Rs. 51,76,000/- before lower authorities to demonstrate that no interest expenses were incurred for earning of exempt income from dividend. S.No. Type of oan Total loan amount Interest paid 1. Term loans 7.88 crores 31,70,000/- 2. Working capital 2.26 crores 16,05,000/- 3. Vehicle loans 0.49 crores 4,01,000/- Total interest bearing funds 10.64 crores 51,76,000/- 4.3. It was further pleaded that the total interest bearing funds of Rs. 10.64 crores mentioned above are utilized for acquiring business assets and investing working capital requirements totaling to Rs. 25.45 crores qua which the assessee further contributed 14.80 crores from its funds. Thus, the entire interest bearing funds were utilized for business purpose and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to earn income which does not or shall not form part of the total income. In view of the above decision of Hon'ble Delhi High Court, the disallowance of Rs. 37,49,875/- made under rule 8D(2)(ii) is upheld and this ground of appeal is partly allowed. 4.5. Aggrieved, assessee is before us. 5. Ld. Counsel for the assessee contends that Hon'ble Delhi High Court judgment in the Maxopp Investment Ltd. judgment (supra) has analysed Rule 8D(2)(ii) and laid down a method for determination of expenditure in relation to exempt income on three components- (i) Ascertainment of amount of expenditure including interest expenditure directly relating to income which does not form part of the total income; (ii) Ascertainment of amount computed on the basis of formula given therein in a case where the assessee incurs interest expenditure which is not directly attributable to any particular income or receipt. (iii) The amount disallowable u/s 14A is an artificial figure i.e. one half percent of the average value of the investment. 5.1. It is the aggregate of these three components to work out the expenditure qua exempt income which can be disallowed u/s 14A in terms of sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contribution from assessee's own funds. Thus, there is no justification in holding that any borrowed fund or interest paid for it was in any way attributable to investment in mutual fund for earning exempt income. Therefore, the directions of ld. CIT(A) though take support of Maxopp Investment Ltd. judgment, in effect run contrary to the judgment. Therefore, the confirmation of disallowance of Rs. 37,49,875/- is arbitrary and excessive. 6. Per contra, ld. DR contends that there is no merit in the arguments of ld. Counsel for the assessee that assessing officer has not recorded any satisfaction while rejecting the working of 14A disallowance provided by the assessee. Besides, once the provisions of Sec. 14A are attracted the mandatory formula of Rule 8D(2)(iii) comes into motion and the disallowance is called for. 7. Ld. Counsel for the assessee in reply contends that the order of CIT(A) in the present facts and circumstances is unjust and contrary to record and Hon'ble Delhi High Court judgment inasmuch as when no interest bearing funds are utilized for acquiring the mutual funds, rule 8D(2)(iii) does not come into play at all. Besides, for the exempt dividend incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for acquiring of mutual funds on which assessee has earned exempt dividend income. 10.1. It has further been pointed out that assessee has share capital of Rs. 215 crores out of which the mutual funds were acquired. The second component of Maxopp judgment is applicable when some of the interest is found which is not directly attributable to any particular income or receipt. In the present case assessee has demonstrated that interest paid is directly attributable only to the acquisition of business assets and working capital and it has no nexus with the acquisition of mutual funds. 10.2. It has not been disputed that assessee furnished a working of suo motu disallowance u/s 14A on indirect expenses. From the record we find, none of the lower authorities have objectively pointed out any fault in this working. They have addressed the issue only on the basis of interest which is not attributable or apportionable in view of above findings. In both the judgments i.e. Maxopp and Godrej Boyce, scope of reasonable disallowance of indirect expenses has been indicated. Since, assessee's working has not been objectively challenged, in our view there is no factual challenge to the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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