TMI Blog2018 (3) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Revenue against the order dated 04.03.2016 of Ld.CIT(A)-16, New Delhi pertaining to 2012-13 AY on the following grounds:- 1. Whether on the facts the circumstances of the case, Ld. CIT(A) was correct in deleting the disallowance of ₹ 2,76,36,280/- made on account u/s 14A r.w.r. 8D? 2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. Disallowance u/s 14A: - 2. Brief facts of the case are that the assessee company is engaged in business of consultancy, Online date, retrieval services, corporate insurance agency software development. During the year the company has earned tax free income of and for the purpose the company has made investment of ₹ 1,12,62,25,693/-. It was also noticed that the company has paid interest amounting to ₹ 4,85,07,256/-. The AO has asked the assessee to furnish the details of exempt income and expenditure pertaining to earning of the exempt income. After considering the reply of the assessee, AO observed that the estimation made by the assessee is not satisfactory and acceptable and held that Rule 8D of Income tax Rules 1962 is squarely applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Sheet. He argued that since borrowed funds have been utilized for investment, the action of AO needs to be upheld. 7. Ld. DR has further relied on the decision in the case of Vipin Malik vs ACIT 45 ITR 589 (ITAT, Delhi), on the preposition that where no disallowance was made by the assessee invoking the provisions of Rule 8D(2)(iii) disallowance made by the AO, was held to be justified and since the case is also on the similar grounds, the action of the AO disallowing the expenses under Rule 8D(2)(iii) needs to be upheld. 8. Against the arguments of Ld.DR, Ld.AR submitted that there are three different investments made by the assessee which are as under:- Particulars Strategic Advisory Division N-Sure Division Windmill Division Total Strategic Investments in unlisted shares of subsidiaries and associate companies 76.59 0 0 76.59 Debt oriented mutual funds-Dividend Plan 10.76 0 0 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 011 27/1/2015 has held that Section 14A of the Act requires the Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income. The satisfaction to be recorded must be based upon credible and relevant evidence. The onus, therefore, to prove that interest bearing funds were used, lies squarely on the shoulders of the revenue. Thus, if the Assessing Officer is able to refer to relevant material while recording satisfaction that borrowed funds were used to earn interest free income as opposed to the assessee's own funds, the Assessing Officer may legitimately disallow such a claim. The Assessing Officer, however, cannot, by recording general interest bearing funds, proceed to infer that interest bearing income must has been used to earn exempted income. Section 14A of the Act, being in the nature of an exception, has to be construed strictly and only where the Assessing Officer records satisfaction, on the basis of clear and cogent material, shall an order be passed under section 14A of the Act, disallowing such a claim. As there is no tangible material on record that could have enabled the Assessing Officer to record satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares of subsidiary companies, which are definitely not for the purpose of earning exempt income. The Hon'ble Tribunal in ITA No. 3349/DEL/2011 in the case of Promain Ltd, after relying upon a Kolkata judgment of Tribunal in ITA No. 1331 has held that strategic investment has to be excluded for the purpose of arriving at disallowance under Rule BD(iii). Following the above judicial precedents, we held that value of strategic investment should be excluded for the purposes of disallowance under Rule 8D(3). We direct the Assessing Officer to calculate the disallowance under Rule 8D(3) by excluding the value of strategic investments in the calculation of disallowance. ( e) U.P. Electronics Corporation Ltd v DCIT (TDS), ITA No. 538/LKW /2012 dated 23/1/2015 (AY 09-10) In the case of DCl'T v Jindal Photo Ltd in ITA No. 814/Del/2011, the Delhi Bench of the Tribunal has also expressed similar view, in which it has been held that satisfaction of the Assessing Officer is prerequisite to invoke the provisions of Rule 8D. Therefore, in the absence of objective satisfaction by the Assessing Officer, the disallowance made under Rule 8D is not sustainable in the eye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt upon him to in fact examine the accounts loosely and determine if at all any expenditure could be ascribed to the tax exempt dividend / interest earned by the assessee. If indeed the tax exempted income was earned without the interference of any employee but rather through the solicitation and advertisement of the bank the question of attributing any expenditure cannot arise at all. ( k) ACB India Ltd. V Is. ACIT (Delhi High Court)- 24/03/2015 Section 14A Rule BD(2)(iii): in computing the average value of investment': only the investments yielding nontaxable income have to be considered and not all investments. In view of the above submission, it is prayed that the CIT (A) order may kindly be upheld. 11. Rebutting the arguments of Ld.AR, Ld. DR argued that it cannot be said that no managerial expenses have been incurred for investments and also there has been an interest component which is to be disallowed as being utilized for earning the exempt income. 12. We have heard the arguments of both parties and perused the material available on record. Taking into consideration, the strategic investment, debt oriented general funds (dividend), debt orient ..... X X X X Extracts X X X X X X X X Extracts X X X X
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