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TMI Blog2018 (5) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance u/s 14A r.w.r. 8D of I.T. Rules. 2 On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting addition of Rs. 32,37,20,998/ made on protective basis on a/c of capital gains. 3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 2. Briefly stated facts of the case are that the assessee company was engaged in the business of investment in shares as well as trading of shares and securities. For the year under consideration, the assessee filed return of income on 30/09/2009 declaring total income of Rs. 89,71,624/-. The case was selected for scrutiny and notice under section 143(2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring funds have been utilized for the purpose of acquisition of the shares leading to earning of exempt income, thus, he issued show cause notice to the assessee as why the interest expenditure incurred for investment in shares yielding exempt income, may not be disallowed under the provisions of section 14A of the Act. The assessee explained that the investment was made out of own surplus funds and no loan funds were utilized for making investment. It was also submitted that the dividend was normally credited through electronic clearing scheme of the banks, directly in the bank account and, therefore, no expenditure was incurred for earning the dividend income also. The Assessing Officer did not accept the contentions of the assessee and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he items of expenses claimed in the profit and loss account reveal any linkage with exempt income, barring general expenses of Rs. 25, 830/-claimed therein, which even relates to business activity of the assessee. 3.2 The assessee also submitted that the Assessing Officer has computed the disallowance under Rule 8D(2)(iii) of the Rules at 5% of the average value of investment instead of 0.5% prescribed under the Rule and the amount of Rs. 2240 crores, which is not capable of generating exempt income, has also not been excluded. According to the assessee, disallowance under Rule 8D(2)(iii) should work out to Rs. 5,42,745/- only as against Rs. 1,10,27,709/- made by the Assessing Officer. 3.3 The Ld. CIT(A) accepted the contention of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer is required to dissatisfied with a claim of the assessee and then only he can resort to compute the disallowance according to the method prescribed. Under the Rule 8D of Rules, method for computation of the disallowance has been prescribed. For ready reference , the relevant provision is reproduced as under: "Expenditure incurred in relation to income not includible in total income. 14A. (1) ............................................................ (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed17, if the Assessing Officer, having regard to the accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of utilisation of borrowed funds for investment. In our opinion, the Ld. CIT(A) had duly verified that no borrowed funds have been utilised for investment in shares yielding exempt income and Ld. DR could not point out any error in the verification and finding of fact recorded by the Ld. CIT(A). 3.10 In view of the above, no disallowance could be made for expenditure directly relatable to the investment in terms of Rule 8D(2)(i) of the Rules. 3.11 We also note that the correct amount of disallowance under Rule 8D (2)(iii), has been worked out by the Ld. counsel of the assessee at Rs. 5,42,745/-. The Ld. DR could not find out any error in the said computation. However, we note that in the case of Joint Investment Company P. Ltd. (ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2006- 07 on the plea that said sale transaction was challenged in the Hon'ble Delhi High Court and, therefore, no capital gain accrued to the company till the matter was finally settled by the Hon'ble court. The assessee argued that taxability of the capital gain would arise in the year in which the dispute is settled. However, in the assessment order for assessment year 2006-07, the said capital gain was held taxable by the Assessing Officers and accordingly, made addition. 4.2 The matter of dispute related to sale transaction was referred to arbitration and during the year under consideration, the assessee received sale proceeds amounting to Rs. 3249.51 lakhs along with interest accrued up to the 08/10/2007. 4.3 According to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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