TMI Blog2017 (5) TMI 1719X X X X Extracts X X X X X X X X Extracts X X X X ..... diture under rule 8D(2)(ii) cannot be made. We, therefore, direct the Assessing Officer to verify the audited financial statements of the assessee and if it is found that the assessee had sufficient interest free funds available with it to make the investment, the addition made on account of disallowance of interest expenditure should be deleted in all the assessment years. Disallowance of administrative expenditure under rule 8D(2)(iii) - assessee s claim that strategic investment has to be excluded from the average value of investment for working out disallowance under section 8D(2)(iii) requires consideration by the Assessing Officer. However, the assessee is also required to substantiate that the investment in group companies / concerns were for protecting the business interest of the assessee or for business purpose. We, therefore, direct the Assessing Officer to examine this issue afresh after considering the submissions of the assessee and in the light of the decisions to be relied upon by the assessee. While doing so, the Assessing Officer must also consider assessee s claim that under no circumstances, disallowance under section 14A r/w rule 8D should exceed the exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of stock in trade. Therefore, on the date of drawing the Balance Sheet, the assessee has to value such stock in trade as per stock or market price whichever is lower. In the present case, there is no dispute that the assessee has valued the derivatives as per the market price prevailing on the date of Balance Sheet. That being the case, marked to market loss claimed by the assessee is allowable. In the case of Chirag Ranjit [ 2014 (1) TMI 943 - ITAT MUMBAI] after taking note of CBDT instruction no.3 of 2010 dated 23rd March 2010, has allowed assessee s claim of marked to market loss. Moreover, the learned Commissioner (Appeals) has given a factual finding that the assessee has carried out trading in NIFTY futures on NSE which is a recognized Stock Exchange. He has also observed that the said transactions were carried out electronically on screen based system and supported by time stamped contract notes issued by the broker. Hence, these transactions are eligible transaction within the meaning of section 43(5)(d) of the Act. Nothing has been brought to our notice by the learned Departmental Representative to controvert the aforesaid factual finding of the learned Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llow interest expenditure under rule 8D(2)(ii) amounting to ₹ 6,44,42,680, and administrative expenditure under rule 8D(2)(iii) amounting to ₹ 40,38,890. Thus, the total disallowance made by the Assessing Officer under section 14A r/w rule 8D, was ₹ 6,84,81,499. The assessee having itself disallowed an amount of ₹ 40,38,819, the Assessing Officer restricted the disallowance to ₹ 6,44,42,680. Similar disallowance was made in other assessment years under appeal. Though, the assessee challenged the disallowance before the first appellate authority, he also confirmed the same. 6. The learned Authorised Representative submitted before us that in all these assessment years, the assessee had sufficient interest free funds available with it to make the exempt income yielding investment. To substantiate such claim learned Authorised Representative drew our attention to a chart showing availability of interest free funds with the assessee and investment made in shares and mutual funds. He also drew our attention to the Balance Sheet of the company for the relevant assessment years to demonstrate such fact. The learned Authorised Representative submitted, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA no.4245/ Del./2011 dated 02.12.2011; and ix) Garware Wall Ropes Ltd. v/s ACIT, ITA no.5408/Mum./2012, dated 15.01.2014. 8. Learned Authorised Representative submitted, in any event, disallowance under section 14A cannot exceed the exempt income earned by the assessee in a particular assessment year. In support of such proposition, he relied upon the following decisions: i) Daga Global Chemicals Pvt. Ltd. v/s ACIT, ITA no.5592/Mum./2012, dated 01.01.2015; ii) CNI Research Ltd. v/s DCIT, ITA no.4395/Mum./2014, dated 18.05.2016; iii) Joint Investments Pvt. Ltd. v/s CIT, [2015] 59 taxmann.com 295 (Del.); iv) Original Innovative Logistics India Pvt. Ltd. v/s JCIT, [2016] 76 taxmann.com 364 (Chennai); and v) PCIT v/s Empire Package Pvt. Ltd., ITA no.415 of 2015 (O M), dated 12.01.2016. 9. Finally, the learned Authorised Representative submitted, the Assessing Officer while invoking the provisions under section 14A r/w rule 8D, has not recorded any satisfaction to the effect that the claim of the assessee regarding non incurring of expenditure for earning exempt income is not correct having referenced with books of account. 10. Learned De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee far exceed the investment made in exempt income yielding assets. In fact, investment made in shares and mutual fund in all these assessment years works out to between 8 and 10% of the interest free funds available with the assessee. We have noticed that while dealing with the claim of the assessee that sufficient interest free funds were available to make the investment neither the Assessing Officer nor the learned Commissioner (Appeals) have disputed such fact. However, the only reason for which they rejected assessee s claim is, the assessee failed to establish a direct nexus between the interest free funds available with it and the investment made in shares and mutual funds. In our view, there is no requirement for the assessee to establish such nexus. The Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom.), held that when the assessee has a bag of mixed funds available with it comprising of both interest bearing as well as interest free funds, the presumption would be, the investments made by the assessee is out of interest free funds available in the common kitty. The aforesaid principle was subsequently follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2011 12 is concerned, we have noted from the chart furnished before us by the learned Authorised Representative that in the said assessment year, the assessee has not earned any exempt income. Neither the assessment order nor the order of the learned Commissioner (Appeals) throws much light on the issue whether in the relevant previous year, the assessee had earned any exempt income or not. Therefore, we direct the Assessing Officer to verify this aspect and in the event, it is ascertained that in the relevant previous year, the assessee had not earned any exempt income, no addition on account of disallowance under section 14A r/w rule 8D can be made. In view of our decision as aforesaid, we do not feel it necessary to deal with assessee s contention on the issue of recording of satisfaction by the Assessing Officer. Ground raised by the assessee in all the assessment years is allowed for statistical purposes. 15. The next issue which arises for consideration in assessee s appeal for assessment year 2011 12 being ITA no.7130/Mum./2013, is in relation to disallowance on Annual Information Return (AIR). 16. The Assessing Officer, in the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions of the assessee and taking note of the fact that the assessee has filed a rectification application under section 154 of the Act before the Assessing Officer on the very same issue, directed the Assessing Officer to dispose off application filed under section 154. 24. We have considered the submissions of the parties and perused the material available on record. Learned Authorised Representative has submitted before us that in the relevant previous year, the assessee claimed TDS credit of ₹ 3,46,83,293, as per the TDS certificates available with it and which was not given credit by the Assessing Officer while completing the assessment. Learned Authorised Representative submitted, assessee s application for rectification under section 154 is still pending before the Assessing Officer and not yet been disposed off. As could be seen, the issue relates to verification of assessee s claim of grant of TDS credit as per TDS certificate available with it. We have further noted that the assessee had filed an application under section 154 before the Assessing Officer praying for giving TDS credit as per TDS certificates. In fact, while disposing off assessee s appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions referred to by him. He further submitted, as per CBDT instruction no.3 of 2010 dated 23rd March 2010, loss on account of future and option transaction being a notional loss cannot be set off against normal business income of the assessee. 29. Learned Authorised Representative on the other hand vehemently opposing the contention of the learned Departmental Representative submitted that the learned Commissioner (Appeals) having followed the consistent view of the Tribunal, his decision should be upheld. 30. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Undisputedly, the derivatives on which the assessee has claimed loss are in the nature of stock in trade. Therefore, on the date of drawing the Balance Sheet, the assessee has to value such stock in trade as per stock or market price whichever is lower. In the present case, there is no dispute that the assessee has valued the derivatives as per the market price prevailing on the date of Balance Sheet. That being the case, marked to market loss claimed by the assessee is allowable. We have further noted that the aforesaid view o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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