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TMI Blog2015 (11) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... o be exempt by the assessee. The disallowance on account of expenditure incurred in relation to the earning of the said exempt income was also offered by the assessee under section 14A of the Act read with Rule 6D to the extent of Rs. 36,51,843/-. According to the Assessing Officer, the computation of the said disallowance as worked out by the assessee was not in accordance with the relevant provisions of the Income Tax Act. He noted that expenditure incurred on interest amounting to Rs. 14,40,52,291/- was claimed as deduction by the assessee, but the same was not considered for the purpose of computing the disallowance to be made under section 14A read with Rule 8D. He accordingly recomputed the disallowance under section 14A read with Rule 8D at Rs. 2,47,79,104/- taking into consideration the amount of deduction claimed by the assessee on account of interest also and made a further disallowance of Rs. 2,11,27,261/- under section 14A read with Rule 8D. 4. The disallowance made by the Assessing Officer under section 14A read with Rule 8D was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and the following submissions, inter alia, were made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the common kitty. There is no immediate correlation between the: funds taken for loan and investments in the shares. However, there is otherwise also no direct relation between the investment and the capital being raised out of which the money is invested. It is a mixed account out' of which the funds are being taken out for business and investments. Every time the money is taken out from the bank is only because there is a credit balance in the name of the assessee. But still there may be over draft facility used from the same or other banks and loans outstanding in the name of the assessee. 6. The loans may have been taken for purchase of machinery but out of the use of the machinery the manufacturing process is carried out and the manufactured goods are sold. The said sale price on receiving may be going for investment. Therefore, it can. b.e said that there is no relation between the loans taken by the assessee and the investments made by the assessee but it cannot also be established that loan funds never move out of business & in all forms are used exclusively for business. Further it is seen that there are carried forward business losses of Rs. 138.69 crores on 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and specific rule i.e. Rule 8D(2)(iii) being applicable from assessment year 2008-09 the expenditure by way of interest has to be calculated as per the specific provision provided in Rule 8D". 6. For the reasons given above and relying on the decision of the Hon'ble Calcutta High Court in the case of ISG Traders Ltd. -vs.- CIT (ITA No. 264 of 2003) and in the case of Dhanuka & Sons -vs.- CIT [12 Taxman.com.227), he confirmed the disallowance made by the Assessing Officer under section 14A of the Act read with Rule 8D. 7. The ld. Counsel for the assessee while challenging the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest under section 14A read with Rule 8D has mainly raised two-fold contentions. Firstly he has invited our attention to the assessment order passed by the Assessing Officer under section 143(3) in assessee's case for assessment year 2006-07 (copy placed at pages no. 60 to 66 of the paper book) to point out that the entire interest expenditure claimed by the assessee in that year was allowed by the Assessing Officer after recording a finding that no interest expenses was found to have been incurred by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strongly supported the impugned order of the ld. CIT(Appeals) confirming the disallowance made by the Assessing Officer under section 14A read with Rule 8D. He contended that Rule 8D is made applicable from assessment year 2008-09 and, therefore, the assessment made by the Assessing Officer in assessee's own case for A.Ys. 2006-07 and 2007-08 making no disallowance under section 14A on account of interest has no relevance to decide the issue relating to disallowance under section 14A in the year under consideration where Rule 8D is now made applicable. 10. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the investment in shares on which the exempt dividend income is earned by the assessee during the year under consideration was actually made in the earlier years and in the assessment completed for assessment year 2006-07 under section 143(3), no disallowance on account of interest was made by the Assessing Officer under section 14A after recording a finding that the borrowed funds were entirely utilized by the assessee for the purpose of business and the same were not used for making any investment in shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A in relation to the expenditure incurred in relation to earning of exempt income and there was no reason given by the Assessing Officer, having regard to the accounts of the assessee, to show his dissatisfaction with the correctness of quantum of expenditure disallowed by the assessee under section 14A. In the case of REI Agro Limited (supra) cited by the ld. Counsel for the assessee, it was held by the Coordinate Bench of this Tribunal that where the assessee makes a claim that only a particular amount is to be disallowed under section 14A and if the Assessing Officer proposes to invoke section 14A, he has to record the satisfaction as to how the claim of the assessee is not correct having regard to the accounts of the assessee. It was held that if there is no such satisfaction recorded by the Assessing Officer, no disallowance could be made by him by invoking the provisions of section 14A. Keeping in view this decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited, which has been affirmed by the Hon'ble Calcutta High Court, we hold that in the absence of requisite satisfaction recorded by the Assessing Officer showing how the disallowance offered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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