TMI Blog2015 (7) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... -07 but at the same time it cannot be denied that the assessee has a tax free dividend income on which some part of the expenses would have been incurred and which is otherwise disallowable u/s 14A of the Act. With these observations the CIT(A) concluded and restricted the disallowance to the extent of ₹ 1 lakh. While we analyze the chart given in regard to interest paid by the assessee we note that the interest paid to the partners on their capital is ₹ 88,94,929/- and interest paid towards security deposits overdraft facility loan on vehicles late payments and bank charges comes to ₹ 1,01,37,215/- and after deducting interest received by the assessee on fixed deposit of ₹ 21,03,300/- the net interest debited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sole ground raised by the Revenue in ITA No. 2069/Del/2012 reads as under: On the facts and in the circumstances of the case, ld. CIT(A)-XXV, New Delhi has erred in deleting the addition of ₹ 14,35,233/- out of total addition of ₹ 15,35,233/- made by AO u/s 14A read with Rule 8D of I.T. Rules. 3. Cross objections raised by the assessee in CO No. 354/Del/2012 read as under: 1. That the CIT(Appeal) XXV New Delhi erred on facts and in law in confirming the disallowance of interest expenditure amounting to ₹ 1,00,000/- u/s 14A Income-tax Act, 1961 (the Act), alleged to have been incurred for earning tax free dividend income. 2. That the CIT(A) erred on facts and in law in not holding that disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, interalia, the assessment order, impugned order and written submissions and case laws relied by both the sides. 6. Undisputedly Rule 8D of the I.T. Rules, 1962 (for short the Rules ) is not applicable in the present case of the assessee as the cases related to A.Y. 2006-07 and the same is applicable from A.Y. 2008-09 onwards. The authorities below have not disputed that the assessee declared tax free dividend income of ₹ 20,83,618/- which was claimed as exempt u/s 10(34) of the Act in the return of income. From operative part of the impugned order we note that the CIT(A) granted relief for the assessee with following observations and conclusions: 3. The assessee has taken as many as 2 grounds of appeal but the main g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the case of the assessee. The assessee also argued that the AO has computed the disallowance without considering the facts that the assessee has the partners capital of ₹ 15,37,14,803/- which has been utilized for the purpose of business and as such the AO is not justified to make any disallowance of the interest payments which has been paid for the purpose of business. It is also submitted that the AO has not given any finding for invoking the provisions of Rule 8D which in any case is not applicable in the current year. It is also submitted that the assessee has not proved any nexus between the earning of tax free dividend and in investment of borrowed fund on which the interest payment is being disallowed by the AO by invoking th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose, the AO is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act . 3.5 After considering all the facts and circumstances of the case, I find some merits in the submission of the assessee that the provisions of Rule 8D is not applicable in the case of the assessee but at the same time it cannot be denied that the assessee has earned tax free dividend income on which some part of the expenses would have been incurred and which is even otherwise disallowable u/s 14A and accordingly, it will be in the interest of justice to make a nominal estimated disallowance of ₹ 1,00,000/- and as such the disallowance of ₹ 1,00,000/- is confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DR. In this situation, while the assessee has earned dividend income on equity shares amounting to ₹ 11,32,575/- and on mutual funds of ₹ 9,51,042/- then interest paid to bank on overdraft facility amounting to ₹ 3,38,505/- and bank charges of ₹ 2,46,968/- may be related expenses of business activities of the assessee which also includes investments which brings tax free dividend income to the assessee. 9. Therefore, in totality of the facts and circumstances, we are of the considered view that the invocation of Rule 8D of the Rules by the AO was an incorrect action which was rightly corrected by the CIT(A) restricting the disallowance u/s 14A of the Act to the extent of ₹ 1 lakh. We are unable to see any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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