TMI Blog2016 (1) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... equired exercise has not been done by the Assessing Officer before making disallowance by invoking the provisions of section 14A r.w. Rule 8D. The assessee has further contended that the assessee is having both interest bearing funds as well as own funds. However, the investment has been made from own funds. In case assessee’s own funds are in excess of the investment made, then it has to be presumed that the investments have come from the interest-free funds available with the assessee. This view is supported by the decision rendered by the Hon’ble Bombay High Court, in the case of CIT Vs HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT). In the instant case, the Assessing Officer has mechanically applied the provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds. (3) On the facts and in the circumstances of the case, the Ld. Commissioner (Appeals) has erred in confirming the disallowance of ₹ 4,26,258/- under section 14A without considering that the addition to the business income for such disallowance is also eligible for deduction u/s 80P. (4) On the facts and in the circumstances of the case, the Ld. Commissioner (Appeals) has erred in confirming the disallowance of ₹ 4,26,258/- under section 14A in respect of dividend income of ₹ 3,78,251/- without considering that the interest income was more than interest expense and that there was net positive interest income and therefore the same cannot be considered for disallowance. (5) The appellant may be allowed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made by the assessee during the assessment year under appeal. The authorities below have erred in making disallowance u/s. 14A r.w. Rule 8D without rejecting the books of account of the assessee or by recording any satisfaction. The ld. AR submitted, that since the Assessing Officer has failed to record reasons for invoking the provisions of Rule 8D, the disallowance made u/s. 14A r.w. Rule 8D are liable to be set aside. To support his submissions, the ld. AR placed reliance on the decision rendered in the case of ACIT Vs. Magarpatta Township Development Construction Co. Ltd. reported as 46 Taxmann.com 284 (Pune-Trib). The ld. AR further submitted that the assessee is having both, interest bearing funds, as well as own funds. Even the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities below. We have also considered the decisions on which the rival sides have placed reliance. The assessee during the period relevant to the assessment year under appeal has earned tax free dividend income of ₹ 3,78,251/- from investment made in mutual funds. It is an undisputed fact that the assessee has made investment of ₹ 49,99,999/- in mutual funds in the earlier assessment year and no fresh investment has been made in the period relevant to the impugned assessment year. The assessee has not made any disallowance on tax free income u/s. 14A on the ground that the entire income of the assessee is fully exempt u/s. 80P of the Act. The Assessing Officer by invoking the provisions of Rule 8D have made disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D, without considering the correctness of the claim made by the assessee, in respect of the expenditure incurred in relation to the exempt income. The Hon ble Bombay High Court in the case of Godrej and Boyce Mfg.Co.Ltd Vs Dy.CIT reported as 328 ITR 81 (Bom) has held: Hence, sub-section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture or no expenditure disallowed by the assessee, is incorrect. We observe that in the present case the required exercise has not been done by the Assessing Officer before making disallowance by invoking the provisions of section 14A r.w. Rule 8D. 9. The assessee has further contended that the assessee is having both interest bearing funds as well as own funds. However, the investment has been made from own funds. In case assessee s own funds are in excess of the investment made, then it has to be presumed that the investments have come from the interest-free funds available with the assessee. This view is supported by the decision rendered by the Hon ble Bombay High Court, in the case of CIT Vs HDFC Bank Ltd. (Supra). In the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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