TMI Blog2017 (10) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... , JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Sh. K. Sampath V. Raja Kumar, Advocates For The Respondent : Sh. R.C. Danday, Sr.DR ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 07/07/2014 passed by the Commissioner of Income-tax (Appeals)-IV, New Delhi [in short the CIT-(A) ] for assessment year 2010-11, raising following grounds: 1. On the facts and circumstances of the case Ld. CIT(A)/ACIT has erred both in law and facts in making a disallowance u/s 14A by invoking the provisions of Rule 8D although on facts, there was no case for applying said Rule. 2. On the facts and circumstances of the case Ld. CIT(A)/ACIT has erred both in law and facts in making a disallowance u/s 14Ain making an incorrect presumption that Appellant invested in mutual funds during the year, without considering the facts on record that assessee has made no such investment. 3. On the facts and circumstances of the case Ld. CIT (A)/ACIT has erred both in law and facts in making a disallowance u/s 14A, on the basis of an assumption that suo moto disallowance of all direct and indirect expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied on this fact while making disallowance invoking Rule 8D of the Rules and therefore, the disallowance need to be deleted. He further submitted that without prejudice to the earlier arguments, in view of the decision of the Hon ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT reported in 378 ITR 33(Del), the disallowance under section 14A of the Act cannot exceed the exempt income earned by the assessee. Accordingly, he submitted that disallowance in the case of the assessee cannot exceed ₹ 6,62,660/-. 5. Learned Sr. DR, on the other hand, relied on the order of the lower authorities. 6. We have heard the rival submission and perused the relevant material on record. We find that in para-4.3 of the impugned assessment order, the Assessing Officer has recorded his dissatisfaction as under: i) The assessee has made investment in units of mutual funds during the year under consideration. First of all, the assessee must have taken decision to invest in mutual funds for which board resolution in this regard would have been passed. Further to maintain, switching in and out of funds or their redemption, decision and necessary formalities would be required. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the funds. In our opinion, by making one factual mistake, other facts for recording the dissatisfaction required in terms of section 14A of the Act cannot be ignored. Accordingly, we reject the contention of the learned counsel challenging the prerequisite of recording the satisfaction under section 14A of the Act. 9. Regarding the alternative ground No. 5 of the assessee, we agree with the contention that disallowance under section 14A of the Act cannot exceed the exempt income earned by the assessee during the year under consideration, in view of the decision of the Hon ble Delhi High Court in the case of Cheminvest Ltd, (supra), wherein it is held as under: 15. Turning to the central question that arises for consideration, the Court finds that the complete answer is provided by the decision of this Court in CIT v. Holcim India (P) Ltd. (decision dated 5th September 2014 in ITA No. 486/2014). In that case a similar question arose, viz., whether the ITAT was justified in deleting the disallowance under Section 14A of the Act when no dividend income had been earned by the Assessee in the relevant AY? The Court referred to the decision of this Court in Maxopp Investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessee in that case and that expenditure had been incurred to protect investment made. 18. In the present case, the factual position that has not been disputed is that the investment by the Assessee in the shares of Max India Ltd. is in the form of a strategic investment. Since the business of the Assessee is of holding investments, the interest expenditure must be held to have been incurred for holding and maintaining such investment. The interest expenditure incurred by the Assessee is in relation to such investments which gives rise to income which does not form part of total income. 19. In light of the clear exposition of the law in Holcim India (P) Ltd. (supra) and in view of the admitted factual position in this case that the Assessee has made strategic investment in shares of Max India Ltd.; that no exempted income was earned by the Assessee in the relevant AY and since the genuineness of the expenditure incurred by the Assessee is not in doubt, the question framed is required to be answered in favour of the Assessee and against the Revenue. 20. Since the Special Bench has relied upon the decision of the Supreme Court in Rajendra Prasad Moody (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order, the ITAT has referred to the decision in Maxopp Investment Ltd. (supra) and remanded the matter to the AO for reconsideration of the issue afresh. The issue in Maxopp Investment Ltd. (supra)was whether the expenditure (including interest on borrowed funds) in respect of investment in shares of operating companies for acquiring and retaining a controlling interest therein was disallowable under Section 14 A of the Act. In the said case admittedly there was dividend earned on such investment. In other words, it was not a case, as the present, where no exempt income was earned in the year in question. Consequently, the said decision was not relevant and did not apply in the context of the issue projected in the present case. 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income ‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Sect ..... 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