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TMI Blog2018 (9) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... ide order dated 26-03-2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act'). 2. The only issue in the appeal of Revenue is against the order of CIT(A) restricting the disallowance of expenses relatable to exempt income under section 14A of Act read with Rule 8D of the Income Tax Rules (hereinafter the 'Rules'), 1962 to the extent of dividend income earned from Mutual Funds amounting to Rs. 31,43,480/- as against the disallowance made by AO at Rs. 1,45,99,068/-. For this Revenue has raised the following three grounds: - "1. Whether, on the facts and in the circumstances of the case, and in law, the Ld. CIT(A) is right in restricting disallowance u/s. 14A of the Act to the extent of the dividend income earned from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 14A of the Act read with Rule 8D of the Rules. The assessee before AO contended that no expenses are incurred for the purpose of earning of exempt income other than the disallowance computed by the assessee suo moto at Rs. 55,35,601/-. The AO has not accepted the disallowance made suo moto and by invoking the provisions of Rule 8D of the Rules i.e. Rule 8D(2)(ii) of Rules disallowance at Rs. 1,19,25,502/- and under Rule 8D(2)(iii) disallowance at Rs. 65,002/-. Thereby, the AO made total disallowance for sum of Rs. 1,19,90,504/- at the first instance. Apart from this, the AO also noted that the assessee has made investment of Rs. 470 crores in Mutual Fund of Birla Sun Life Cash Plus Daily Dividend Reinvestment Scheme and acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred proportionate interest expenses to the tune of Rs. 55,35,601/-. We find from the facts of the case that the AO has disallowed the expenses relatable to exempt income under rule 8D(2)(ii) and under rule 8D(2)(iii) as under:- Sr. No. Particulars Page No. reference Amount 1. Rule 8D(2)(ii) in respect of investments in shares of Piramal Glass Ltd. (PGL) Page 5 of AO order 1,19,25,502 2. Rule 8D(2)(iii) in respect of Page 5 of AO order 65,002 investments in shares PGL 3. Interest disallowance once again* in respect of investments in mutual funds ("MF") Page 5 of AO order 50,00,685 4. Interest disallowance once again* in respect of investments in MF Page 6 of AO order 31,43,480 Total 2,01,34,669 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 272 (Del), wherein it is held as under:- "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, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 24. Consequently, the impugned order of the ITAT is set aside and the appeal is allowed in the above terms. This Court should not be understood to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law was framed by Hon'ble High Court:- "(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the disallowance made under Section 14A read with Rule 8D on the basis of the netting of interest relying upon the decision of its Coordinate benches in Paresh K. Shah (ITA No.8214/M/2011) and M/s. Trade Apartments Ltd.?"" 10. Hon'ble Bombay High Court has answered this question by stating that the disallowance of interest can be on net basis and for this it is held as under:- "3. Regarding question (i):(a) The impugned order of the Tribunal dismissed the Revenue's appeal holding that the disallowance of interest under Section 14A of the Act should be made with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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