TMI Blog2016 (9) TMI 1552X X X X Extracts X X X X X X X X Extracts X X X X ..... diture, have to be deleted. When the assessee himself disallowed some amounts in respect of the expenses attributable to the exempt income, the learned AO assumes jurisdiction to invoke section 14A read with Rule 8D of the Rules only when he reaches a conclusion that the claim of expenditure made by the assessee is not correct. We conclude that own funds of the assessee are sufficiently in excess of investments and the legal requirement of the AO to record the reasons for resorting to Section 14A read with Rule 8D of the Rules in this matter are conspicuously absent. Viewing from any angle, we are convinced that there is no justification for the authorities below to sustain disallowing a sum of ₹ 8,87,670/- over and above which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual direct expenses of STT and on an estimate basis a further sum of ₹ 15,000/- which includes an amount of ₹ 6,901/- direct expense pertaining to depository charges. On 26.09.2009, assessee filed the return of income for the AY 2009-10. While processing the same under Section 143(3) of the Act, learned AO calculated the disallowance under section 14A of the Act read with Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the Rules ) and added a sum of ₹ 8,87,670/- over and above, which was added by the Assessee. Challenging the same, the Assessee carried the matter in appeal before the learned CIT(A) and the learned CIT(A) by way of impugned order confirmed the finding of the learned AO on this aspect. Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the return of income, in the Assessment Order the learned AO should have recorded the reasons and, therefore, mechanical application of section 14A of the Act read with Rule 8D of the Rules is bad under law. Basing on these arguments, he prayed to allow the appeal and to quash the orders or the authorities below. 4. Learned DR, on the other hand, argued that the Assessee has not been maintaining separate accounts for deriving the exempt and non exempt income, as such, in view of the expenses in this case which are spreading over a large number of voluminous activities, it is not possible for the authorities below to calculate the interest and administrative expenses attributable to the exempt income without resorting to section 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HDFC BANK LTD (2014) 366 ITR 0505 (Bom) applies on all fours. In that decision it was held that when assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee, and the additions made by the AO under Rule 8D(2)(ii) by disallowing the expenditure, have to be deleted. 7. Now coming to Rule 8D(2)(iii) of the Rules, according to the assessee, total administrative expenses incurred by them during AY 2009-10 was only ₹ 12,58,755/, out of which the assessee themselves disallowed a sum of ₹ 9,88,053/- towards building expenses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction by the AO under this section is sine qua non and the absence of such recording of satisfaction renders the application of Rule 8D vitiated, is concerned, Section 14A(2) mandates that 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 prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. Rule 8D(1) of the Rules stipulates that for determining amount of expenditure in relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise. For this proposition he also placed reliance on the decisions reported in 347 ITR 272 (Del), 361 ITR 131(P H), 372 ITR 694(Del), 376 ITR 390(Del), AND 378 ITR 240 (Del). 10. In COMMISSIONER OF INCOME TAX, CENTRAL-I, CALCUTTA Versus ASHISH JHUNJHUNWALA G.A. No. 2990 of 2013, wherein the Hon ble Jurisdictional High Court of Calcutta confirmed the following observations of this Tribunal in ITA No 1809/Kol/2012: While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case, it is noticed that the AO has not considered the claim of the assessee and straight away embarke ..... X X X X Extracts X X X X X X X X Extracts X X X X
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