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TMI Blog2020 (7) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,54,046/- which has been claimed as exempt u/s. 10 (34) of the IT Act. He observed from the balance sheet that the value of investment as on the first day of the year was shown at Rs. 3,08,76,900/- and at the close of the year it was shown at Rs. 15,06,70,375/-. He, therefore, asked the assessee to explain as to why disallowance u/s. 14A read with rule 8D of the IT Rules 1962 should not be made. It was explained by the assessee that disallowance of interest u/s. 4 A is not applicable on the assessee company because the interest received is more than interest paid during the year. Therefore, sub rule 2 of Rule 8 D is not applicable to the assessee company. Further, the assessee company has suomoto disallowed Rs. 86,351/- towards administrative expenses. 5. However, the AO was not satisfied with the explanation given by the assessee. Relying on CBDT circular No.05/2014 and the provisions of section 14 A read with Rule 8D of the I. T. Rules, 1962, the AO determined the disallowance at Rs. 12,35,075/-. After considering the suomoto disallowance made by the assessee at Rs. 86,351/- the AO made disallowance of Rs. 11,48,724/-. 6. In appeal the Ld. CIT(A) upheld the disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that from the above it is clear that the AO has not made any disallowance under rule 8D (2) (i) on account of expenses directly attributable. So far as the disallowance of interest expenses under rule 8 D (2) (ii) is concerned, the Ld. Counsel for the assessee referring to page- 5 of the paper book which is balance sheet of the assessee company as on 31.03.2013, submitted that the interest free funds i.e. share holder funds are more than enough to cover the investment which is verifiable from the financial details. Particulars As at 31.03.2012 (Rs.) As at 31.03.2013 Share holders' funds 8,80,43,752 15,05,77,070 Interest bearing funds Nil Nil Investments 3,08,76,900 13,80,70,375 13. Referring to the decision of Hon'ble Bombay High Court in the case of HDFC Bank Limited reported in 366 ITR 505 and the decision of the Hon'ble Supreme Court in the case of Reliance Industries Limited reported in 410 ITR 466 he submitted that when the interest free funds are more than the investments made, the dividend income of which is exempt from tax, no disallowance of interest expenses can be made. 14. So far as Rule 8 D (2) (iii) is concerned the Ld. Counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssatisfaction. It is sufficient if the order shows due application of mind to all aspects. He submitted that similar view has been taken by Hon'ble Punjab and Haryana High Court in the case of Punjab Tractors Limited Vs. CIT reported in 246 taxmann 31 (393 ITR 223). 19. The Ld. Counsel for the assessee in his rejoinder submitted that the decision in the case of India Bulls Financial Services (supra) was rendered on 29.11.2016 whereas the decision in the case of Punjab Tractors Limited was rendered in the year 2017. However, the decision of Hon'ble Apex Court in the case of Maxopp Investment Limited (supra) was pronounced in the year 2018, therefore, the Hon'ble Courts had no benefit of the decision of Hon'ble Supreme Court and, therefore, the decisions relied on by the Ld. DR cannot be accepted. 20. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has earned dividend income of Rs. 17,54,046/- and made suo-moto disallowance of Rs. 86,351/- u/s. 14 A of the IT Act in the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he details of the expenses other than interest expenses shows that assessee has incurred expenditure of Rs. 7,57,100/- towards administrative expenses. After deducting expenses incurred by the assessee on account of increase in share capital, stamp duty expenses and gratuity expenses at Rs. 2,93,206/- the total administrative expenses comes to Rs. 4,63,894/- against which the assessee has made suo-moto disallowance of Rs. 86,351/- which is approximately 18.61% of the administrative expenses. However, without recording any satisfaction the AO has made the disallowance u/s. 14 A read with Rule 8 D of the IT Rules 1962 which in our opinion is not justified. 23. The Hon'ble Supreme Court in the case of Maxopp Investment Limited (supra) has held that when suomoto disallowance are shown by the assessee, without recording the satisfaction as to why the working shown by the assessee is not acceptable, disallowance cannot be made. The relevant observation of the Hon'ble Supreme Court at para 41 of the order reads as under :- "41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ground No.1 being general in nature is dismissed. 28. In the result, the appeal filed by the assessee is partly allowed for statistical purpose. ITA No. 8203/Del/2018 (A. Y. 2013-14) The grounds raised by the assessee are as under :- 1. That order of lower authority is bad in law and is against the facts and circumstances of the case and total addition and tax on LTCG is unsustainable. 2. That Ld. CIT(A) erred in sustaining the disallowance of Rs. 13,80,676/- made u/s. 14A, without appreciating the fact that the same is without complying with the mandatory conditions of said provision, (a) Without recording 'satisfaction about incurring of expenditure relating to exempt income with regard to accounts. (b) Without even considering the disallowance made by assessee and demonstrating same as wrong etc. 3. That Ld. CIT(A) further erred in not considering the fact that assessee is having more interest free funds than the investment under dividend bearing securities. 4. That Ld. CIT(A) grossly erred in not even addressing the issue of wrongly taxing LTCG Rs. 63,61,718/- on STT paid shares which is exempt u/s. 10 (38) of the Act. 2. After hearing both the sides we find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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