TMI Blog2016 (10) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. As we have already noted that Rule 8D of Income Tax Rules is not applicable for asstt. year 2006-07 and 2007-08 which was wrongly applied by the AO for estimating this amount. The AO has not controverted the ratio adopted by assessee in making suo moto disallowance i.e ratio of dividend income to total income. Therefore, we decline to accept basis adopted by the AO for making disallowances. Per contra, at the same time we are in full agreement with the conclusion of the Ld. CIT(A) wherein he restricted the disallowance u/s 14A of the Act to the ratio of the dividend income to total income of the assessee during the relevant financial period. Hence we are unable to see any valid reason to interfere with the conclusion of the first ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial placed on record. Ld. Sr. DR submitted that the Ld. CIT(A) has erred in restricting the disallowance of ₹ 89,30,000/- made by the AO u/s 14A of the Income Tax Act 1961 ( for short the Act) to ₹ 1,46,397/-. Ld. DR vehemently contended that as per facts and circumstances of the case Ld. CIT(A) has erred in restricting the disallowance ignoring the fact that Rule 8D of the IT Rules 1962 could not be applied since the same was not applicable in the assessment year in question. 4. Replying to the above the Ld. Counsel for the assessee submitted copy of the assessment orders for asstt. year 2006-07 and 2007-08 and submitted that the assessee made suo moto disallowance and on the basis of ratio of dividend income to total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2005 . Thus there was an decrease in the investments of ₹ 6,64,68,654. During the relevant assessment year, the appellant has claimed to have made investments in mutual funds from its own internal sources and no interest bearing fund was used by the appellant for investments. It is also seen that during the relevant assessment year, the appellant has claimed to have recd ₹ 1,42 crores as interest on FORs and incurred ₹ 1.31 crores as expenses on interest. Therefore, there was a gain in interest income after netting of the interest expenditure from the interest income. Moreover, the interest expenditure has been incurred on the amounts of deposits from customers which was taken by the appellant company during the normal co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bai in the case of Godrej Boycee Co. Pvt Ltd. (supra). It is further observed that the Assessing Officer has disallowed an amount of ₹ 89,30,000/- u/s 14A based on a formula which is not a widely acceptable formula and highly debatable. Therefore, the aforesaid addition of ₹ 89,30,000/- made by the Assessing Officer cannot be sustained and directed to be restricted to ₹ 1,46,397/- on which can reasonably be attributable as expenditure incurred for the purposes of earning exempt income. 6. In view of above, we inclined to hold that no material has been brought on record by the AO to show that the interest expenditure was incurred for the purpose of investment earning exempt income. At the same time, we also observed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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