TMI Blog2011 (6) TMI 832X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) erred in confirming the disallowance of ₹ 7,75,201/- u/s 14A, considering the same as expenditure incurred for the purpose of earning tax-free dividend income, out of salary, wages, bonus PF expenses. (4) The ld. CIT(A) erred in enhancement of the disallowance to ₹ 9,17,154/- from ₹ 7,75,201/- u/s 14A by applying Rule 8D of Income-tax Rules. 2. The only issue involved in this appeal is about disallowance of part of administrative expenses u/s 14A by invoking Rule 8D of the IT Rules as according to the AO part of the administrative expenses related to earning of exempted income. In this regard the AO worked out the disallowance as under :- The assessee has shown dividend income of ₹ 66,82,739/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,35,37,801/- 2,02,20,540/- Total turnover 15,34,26,146/- = ₹ 58,81,946/- x ₹ 2,02,20,540/- = ₹ 7,75,201/- Rs.15,34,26,146/- Disallowance i/s 14A of the I.T. Act of Rs.7,75,201/- 3. The ld. CIT(A) was not satisfied and he enhanced the disallowance to ₹ 9,17,154/- as per the calculation made in the appellate order. 4. The ld. AR submitted that disallowance of administrative expenses cannot be done prior to Asst. Year 2007-08 because Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record. In our considered view, the matter would go to the file of AO as per the decision of Hon. Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra) only when it is held that some amount is required to disallowed as there is a nexus between the exempted income and investment, i.e. if Revenue is able to show that interest bearing capital has been invested in shares but where no such nexus is established the question of determining any disallowance does not arise and, therefore, matter need not be sent to the file of AO as no determination of any disallowance would be necessary. In the present case we notice that loan funds have decreased this year as compared to earlier years. Even though investments have increased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial expediency then no interest out of payment made on borrowed funds can be disallowed as held in S. A. Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC). Hon ble Punjab Haryana High Court in CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P H) held that no disallowance out of interest payment is permissible if AO does not establish nexus between the expenditure incurred and income generated. 16. Since assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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