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TMI Blog2017 (9) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in upholding the contention of the learned Income-tax Officer in disallowing a sum of Rs. 5,32,585 by applying the provisions of Section 14 A read with Rule 8 D, as expenditure incurred to earn exempt Dividend income u/s. 10(34)." 2. The brief facts of the case are that the assessee company engaged in the business of manufacturing potassium permanganate & Para Anisic Aldehyde chemicals an trading of chemicals, filed its return of income for the assessment year 2007-08 on 30-09-2008 declaring total income of Rs. 39,68,480. The case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued calling for various details. In response to notices, authorized representative of the assessee attended and filed the details, as call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs Hero Cycles (ITA No. 331 of 2009 (O&M) dated November 4, 2009. 3. The AO, after considering the explanations of the assessee observed that the provisions of section 14A of the Act are clear and there is no scope for any quantification or otherwise, for invoking provisions of section 14A of the Act. The AO further observed that as per sub section (2) of section 14A, disallowance has to be computed in accordance with such method as may be prescribed and accordingly, Rule 8D provides a mechanism for computing disallowance of specific expenditure incurred in relation to exempt income; interest, if any, paid on borrowed funds used for investments as also towards other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowed needs to be examined by the AO with regard to availability of interest free funds for investment in mutual funds. Therefore, he set aside the issue to the file of the AO and directed the AO to verify whether on the date of investment the assessee was having interest free funds or not. In case it is found correct then, the addition made as per section 14A(2) towards interest stood deleted. However, if it is not so, then the addition made by the AO would stand confirmed in view of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd (supra). The CIT(A) further observed that as regards disallowance of 0.5% of average value of investment, the AO was justified in invoking Rule 8D(2)(iii) as the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A. The DR further submitted that although the assessee claims to have earned dividend income from the shares held as stock in trade, failed to furnish any evidence to prove that the assessee is involved in the business of trading in shares and stocks. The assessee's main activity is manufacturing and trading in chemicals. Therefore, there is no merit in the contention of the assessee that its main activity is trading in shares and securities. The AO has considered necessary facts and also analaysed the provisions of section 14A before disallowing interest and other expenditure and his order should be upheld. 7. We have heard both the parties and perused the material available on record. There is no dispute with regard to the earning of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the assessee for the reason that the assessee fails to substantiate its claim of shares held as stock in trade with any evidence. We observe that the assessee has filed its financial statements for the assessment year 2008-09. On perusal of the financial statement we find that the assessee's main activity is to manufacture and trading in chemicals. We further observe that the assessee has made substantial investments in mutual funds. We further notice that the total dividend income earned during the year is out of mutual funds. Therefore, we are of the view that there is no merit in the claim of the assessee that it has earned dividend income from the shares held as stock in trade. We further notice that the assessee has made a turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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