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TMI Blog2016 (5) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... eal is as to whether the disallowance u/s 14A of the Act could be made in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee derived dividend income of Rs. 12,51,249/- . No disallowance of expenditure incurred in relation to such exempt income was made by the assessee. Therefore, the Learned AO invoked the provisions of section 14A of the Act read with Rule 8D of the IT Rules. The Learned AO applied Rule 8D(2)(iii) being 0.5% of average value of investments and disallowed a sum of Rs. 9,89,313/- u/s 14A of the Act. It was argued by the assessee that the investments were made out of surplus fund in mutual funds. It was argued that number of transactions of purchase and redemption was 7 and that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had mechanically applied the provisions of Rule 8D(2)(iii) of the IT Rules without recording his satisfaction in terms of Rule 8D(1) of IT Rules as to why the contention of the assessee that no expenditure was incurred for earning exempt income is incorrect having regard to the accounts of the assessee. The language of Rule 8D(1) is very clear in this regard. We place reliance on the following decisions in this regard:- (a) Decision of the co-ordinate bench of Mumbai Tribunal in the case of Fali S Nariman vs Addl. CIT reported in (2015) 56 taxmann.com 155 (Mumbai - Trib) dated 30.1.2015, wherein it was held that : "4. We have heard the parties and perused the material on record. We are wholly unimpressed with the assessee's argument supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary (Rs. 3.54 lacs); printing and stationery (Rs. 0.11 lacs); and bank charges (Rs. 0.10 lacs), without specifying the relationship, so that the same is inferably casual. Even the claim of depreciation (Rs. 7.26 lacs) we observe as principally on law books. The ingredients of s. 14A(2) r/w r.8D(1) are clearly not satisfied in the instant case. We accordingly find no infirmity in the assessee's claim of disallowance u/s 14A(1) at Rs. 1,00,000/- . We decide accordingly. "" (b) Decision of the co-ordinate bench of Kolkata Tribunal in the case of REI Agro Ltd , Kolkata vs DCIT in ITA No. 1331 / Kol / 2011 dated 19.6.2013 reported in (2013) 35 taxmann.com 404 (Kolkata-Trib.) wherein it was held that : "6. We have considered the rival s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of section 14A(1) clearly shows the wordings, "in relation to the income which does not form part of the total income under this Act". In the present case, this income, which does not form part of the total income under the Act, is the dividend income of Rs. 1,32,638/-. Therefore, if any disallowance is to be made in respect of expenditure incurred, it should be in relation to this dividend income of Rs. 1,32,638/-. If an assessee has invested in shares, which could get dividend or there is investment which generates dividend income or exempt income as also investment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the words in Rule 8D(1) being "where the Assessing Officer, ...... is not satisfied with. (a) ........ (b) ........ in relation to income......., he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). In the assessee's case, admittedly, the assessee has substantial capital. The increase in the capital itself is to an extent of Rs. 4 crores and in respect of reserves and surplus, the increase is Rs. 112 crores. The loans taken during the year admittedly are for the letters of credit and the assessee is bound to provide the bank stock statement and other details to show the utilization of the loans. No bank would permit the loan given for one purpose to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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