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TMI Blog2014 (7) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... eal in this regard. The appellant prays that the disallowance made by the Learned Assessing Officer and confirmed by the Commr. of Income Tax (Appeals) is bad in law and the addition made amounting to Rs. 26, 78, 43, 504/- is not justified and be deleted. 3. On the facts and circumstances of the case the appellant prays that their networth is more than the investments made by the appellant which will yield income not chargeable to tax. Based on this fact the disallowance made amounting to Rs. 26, 78, 43, 504/- is not justified and be deleted. 4. Without prejudice to Grounds 1, 2 & 3 the appellant prays that the activity of purchase and sale of shares is treated as business activity and the result of the said activity is offered for tax under the head 'Business Income'. In view of this no disallowance should be made u/s 14A read with Rule 8D. 5. Without prejudice to Grounds 1, 2 & 3 the appellant prays that in respect of certain investments the appellant has not earned any exempt income. The said investments should not be considered for the purpose of disallowance u/s. 14A rwr 8D. 6. Without prejudice to Grounds 1, 2 & 3 the appellant prays that on transfer of the investments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would treat the investment in securities as capital asset only then it would get the character of investment, that in such circumstances only the provisions of Rule 8D were applicable. The assessee also filed working of the net result of purchase and sale of securities which was treated as business activity and net result was loss of Rs. 135. 53 crores. Business loss accepted by the AO. The assessee further argued that it had borrowed money from banks which were exclusively meant for lending only, that it was not permitted to borrow funds from bank for the purpose of any investment activity, that it had utilised the fund borrowed from the bank for the purpose of lending activity only, that the interest paid to bank amounting to Rs. 5, 61, 94, 71, 887/-out of total interest cost of Rs. 6, 96, 88, 05, 993/-for the year under consideration should not be considered while applying the provisions for making disallowance under Rule 8D, that the said submission should be considered only if the provisions of Rule 8D were considered to be invoked, that it had not borrowed any money directly which would be attributable for the purpose of earning income which was not chargeable to tax, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 61, 94, 71, 887/-, that the AO had accepted assessee's submissions and had considered only the balance interest expenditure of Rs. 1, 34, 93, 34, 105/- in the working of Rule 8D, that issue of the shares forming part of closing stock in trade and not considering them as part of average value of investment and average assets for the purpose of working disallowance of indirect interest expenditure was decided by him against the assessee in the order for the last AY. , that not considering the shares and securities held as stock in trade in working of Rule 8D had consequential effect on working of indirect interest expenditure and on working of administrative & managerial expenses as per sub clause (iii) of Rule 8D(2), that the working of indirect interest cost at Rs. 18, 01, 47, 693/- as per sub clause (ii) of Rule 8D(2) and administrative & managerial expenses at Rs. 5, 0l, 95, 186/ as per sub clause (iii) of the Rule was reasonable. FAA did not accept the argument of the assessee that no administrative or managerial expenses were incurred for the purpose of earning exempt income. He held that the assessee was having huge investment portfolio on which it had earned dividend of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble of earning exempt income were far less. Therefore, no interest cost should be disallowed while working out the disallowance under section under rule 3D. For all the above propositions, he relied upon various case laws including that of Bombay High Court in CLT v/s Reliance Utilities and Power Ltd. , [2009) 313 ITR 340 (Bom. ). 6. Before us, the learned Counsel for the assessee has submitted different working of disallowance based on his above proposition i. e. , (i)working of disallowance, if networth is more than investment capable of yielding exempt income; (ii) disallowance, if investment in equity shares is excluded and (iii) disallowance, if only stock-in-trade is excluded. 7. On the other hand, the learned Departmental Representative relying upon the findings given by the Assessing Officer as well as the learned Commissioner (Appeals), submitted that once provisions of rule 8D are applicable, then the disallowance has to be worked out as per formula given therein. Moreover, it is not a case that the assessee has not paid any interest and, therefore, interest element cannot be excluded in the working. From the other proposition also, he raised strong objection. 8. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e file of the AO to reexamine the nexus of inter interest free funds and investment made. He should afford a reasonable opportunity of hearing to the assessee before deciding the issue. Assessee is directed to furnish cash flow statement before the AO. Grounds no. 1-7 are decided in favour of the assessee, in part. 7. The next effective ground of appeal i. e. ground no. 8 is about addition of Rs. 1. 14 lakhs on the ground that there was mismatch of ITS details. During the course of assessment proceedings, AO directed the assessee to furnish documentary evidences in support of ITS details. After considering the details furnished by the assessee, he found that it had not furnished confirmation from the 4 parties, that there was difference of Rs. 4. 32 lakhs because of non-submission of the required details. 8. Assessee preferred an appeal before the FAA, before him it was argued that ITS details were matched in most of the cases, that assessee had not earned any income from the parties concerned. It was further stated that entry of Rs. 3. 03 lakhs pertain to IL & FS Trust Company and not to the assessee, that the Trust Company had given a confirmation and had owned that transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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