TMI Blog2020 (3) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... stments in the securities which are capable of yielding exempt income. Revenue could not demonstrate co-relation between the utilization of interest bearing borrowed funds with the investments made. Major investments were made during the year under consideration and assessee had also sold its property for consideration of ₹ 9.35 crores during the year under consideration. Assessee has demonstrated with cogent evidences that the assessee has its own interest free funds which are higher than investments and presumption will apply that assessee has invested its own interest free funds for making investments in the securities capable of yielding exempt income. The Revenue is not able to demolish/rebut the aforesaid presumption. The Reliance is placed on decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Limited [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] . Thus, we have no hesitation in ordering deletion of additions as were made by Revenue u/s 14A read with Rule 8D(2)(ii) of the 1962 Rules. So far as additions as were made by Revenue u/s 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules which are vehemently challenged by assessee ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), in ITA No.0200A/2016-17 for assessment year (ay) 2014-15, the appellate proceedings before learned CIT(A) had arisen from assessment order dated 29.12.2016 passed by learned Assessing Officer (hereinafter called the AO ) u/s.143(3) of the Income-tax Act, 1961 (hereinafter called the Act ). 2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Chennai (hereinafter called the Tribunal ) read as under:- The under mentioned grounds of appeal are independent of and without prejudice to one another. 1. The order of the Hon'ble Commissioner of Income Tax (Appeals! is contrary to law and facts. 2. The Hon'ble Commissioner of Income Tax (Appeals) erred in sustaining the addition of ₹ 36,38,000/- under section 14A (in relation to the dividend amount of ₹ 40,62,190/-) since all the investments held by the appellant were funded entirely by company's own funds and no borrowed funds were used for making the investments, as is evident from the facts already submitted to the Assessing Officer and the Commissioner of Income Tax (Appeals) with respect to source and deployment of funds. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and on an erroneous interpretation that the disallowance under Section 14A is to be made automatically regardless of whether or not any expenses were incurred. The decision of the learned Commissioner of Income Tax Appeals) is contrary to the judicial precedents that apply in this regard, including the decisions of the Apex court and various high courts. 9. Without prejudice to the above, it is submitted that the investments which generated exempt income alone should have been considered for the purposes of section 14A. 10.For these and other grounds that may be urged at the time of hearing, it is Respectfully prayed that the addition of ₹ 36,38,000/- made by the Assessing Officer under section 14A in the regular computation as .well as for Book Profits purposes be deleted. 11.The appellant craves leave to add, alter, delete or withdraw any of the grounds of appeal. 3. Briefly stated facts of the case are that the assessee is engaged in business of manufacture and sale of cotton yarn. The only issue agitated in this appeal is with respect to disallowance of expenses incurred in relation to earning of an exempt income, u/s.14A of the Act read with Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14 (ay: 2014-15) , which are placed in Paper Book at Page No.188 onwards and it was submitted that assessee s owned funds were to the tune of ₹ 19.75 Crs. , out of which share capital was to the tune of ₹ 1.75 Crs. and Reserve and Surplus were to the tune of ₹ 18.25 Crs. as on 31.03.2014, while the own funds were to the tune of ₹ 11.71 Crs. as on 31.03.2013. The investments were to the tune of ₹ 834.19 lacs as on 31.03.2014 which were to the tune of ₹ 34.19 Lacs as on 31.03.2013. it was submitted that the presumptions will apply that assessee had invested its own interest free funds. It was further submitted that assessee had sold land for ₹ 9.35 Crs. during the year on 07.11.2013, copy of sale deed along with bank statements is placed on record at page 32-68 of paper book and it is claimed that the aforesaid funds were used for making investments during the year to the tune of approx.. ₹ 8 Crs. The assessee has filed written submissions before the Bench and the reliance is placed on the aforesaid contentions, which is extracted hereunder: Table D- Details of proceeds from sale of land during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules and also to delete disallowance of expenses u/s.14A r.w.r.8D(2)(iii) of the 1961 Act which were to the tune of 0.5% of the average investment. Reliance is also placed by the assessee on the decision of Special Bench of ITAT Delhi in the case of ACIT v. Vireet Investment (P) Limited (2017) 82 taxmann.com 415 (Del- Tri.)(SB) to contend that disallowance of expenses incurred in relation to earning of an exempt income, u/s 115JB be made in accordance with ratio of aforesaid decision of Special Bench. The Ld.DR, on the other hand, relied upon the orders of the authorities below and prayed for setting aside and restoring the matter back to the file of AO for fresh adjudication. 6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that assessee is engaged in the business of manufacture and sale of cotton yarn. We have observed that assessee has received dividend income to the tune of ₹ 40.62 lakhs which was claimed as an exempt income. The assessee has paid interest on borrowings during the year under consideration and disallowance of interest expenses was made to the tune of ₹ 34.21 lakhs by invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king process for investments, time spent by Board of Directors/ committee members or other personnel and cost attributable thereof , other cost incurred such as administrative costs and other costs in relation to these investments, etc., to explain and demonstrate entire cycle of investment making process to discharge primary onus, then the AO has to look into books of accounts to compute the disallowance of expenditure incurred in relation to earning of an exempt income and to record satisfaction. In the absence thereof of the discharge of primary onus by the assessee as aforesaid, the AO will have right to invoke Rule 8D(2)(iii) of the 1962 Rules after recording satisfaction as mandated u/s 14A of the 1961 Act. Thus, the matter is remitted back to the file of the AO for fresh adjudication and the assessee is directed to produce relevant details /explanation and modus operandi of managing its investment portfolio as detailed above by us in this order. We agree with the contentions of the assessee that Section 14A read with Rule 8D(2) of the 1962 Rules cannot be invoked for making disallowance u/s 115JB of the 1961 Act but disallowance of expenses incurred relatable to earning o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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