TMI Blog2020 (12) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... ent income which is exempt, irrespective of whether such exempt income was received during AY 2011-12. This approach has been upheld by the learned ITAT. We do not find any perversity in the same or find any reason to entertain the present appeal to interfere with this finding that is based on facts. Addition with respect to the prior period income - HELD THAT:- As noticed that the profit and loss account of the Respondent-Assessee shows that it has neither taken the prior period income in its taxable profit, nor has considered the prior period expenses i.e. the prior period adjustments have been made by the Respondent-Assessee on below the line profit. On this issue, since factual aspects have to be verified, the learned ITAT has remanded back this issue with a direction to the AO to net off prior period income and the prior period expenditure and tax only the net income. This direction calls for no interference by this Court. No substantial question of law. - ITA 136/2020 - - - Dated:- 17-11-2020 - HON BLE MR. JUSTICE MANMOHAN AND HON BLE MR. JUSTICE SANJEEV NARULA Appellant Through: Mr. Ajit Sharma, Advocate with Mr. Luqman Hasan, Advocate. Respondent Through: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the addition with respect to the prior period income and refers to the proposed substantial questions of law, extracted hereinbelow:- a) Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT is justified in restricting the disallowance to only 0.5% of average investment income of ₹ 1,33,74,000/- in terms of section 14A r. w. Rule 8D(2)(iii) as against ₹ 9,69,57,875/- disallowed u/s∙ 14A r. w. Rule 8D(2)(ii) and (iii) ? b) Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT has erred in deleting the addition of ₹ 3,36,80,000/- made by the assessment officer on account of prior period income? c) Whether the order passed by ITAT is bad in law and on facts? 6. Mr. Sharma argues that the learned ITAT was not justified in restricting the disallowance in terms of Section 14A/w Rule 8D(2)(iii) only to the extent of 0.5% of average investment income of ₹ 1,33,74,000/-as against ₹ 9,69,57,875/ -. He submits that the Respondent-Assessee had made certain investments relating to tax-free income. He further submits, that as on 31.03.2011, the Respondent-Assessee had made an inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an investment of ₹ 2500/-million INR in bonds besides an investment of ₹ 1446. 58 million INR in subsidiaries and an investment of ₹ 1000/- million INR in the preference shares of ITI limited. The above figures are the figures of closing balance of the investments. The opening balances of these investments are same except the investments in subsidiary companies which were ₹ 1245.77 million INR. As regards LIC Mutual fund, the opening investment was ₹ 349.6 million INR which reduced to nil at the end of the year. The Total investments (closing balance) of ₹ 4946.58 million INR constitute 3.5% of the closing balance of share capital, reserves surplus and loans totaling ₹ 1,41,021.56 million INR. In view of this factual position and also considering the fact that the assessee has interest free funds in the form of share capital and reserves surplus of ₹ 66,464.81 million INR (being the closing balance), there is no reason why the appellant's claim that the interest bearing funds have not been used for making investment should not be accepted. Therefore, the disallowance of interest under rule 14 A r. w. rule 8D (2)(ii) of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the average investment income which is exempt. It was noticed that value of average investment had been calculated as the average of total investments, mentioned in Schedule F. However, the CIT (A) noted that since all the investments mentioned in Schedule F do not yield exempt income, disallowance under Section 14A read with Rule 8D(2)(iii) has been restricted only to 0.5% of the average investment income which is exempt, irrespective of whether such exempt income was received during AY 2011-12. This approach has been upheld by the learned ITAT. We do not find any perversity in the same or find any reason to entertain the present appeal to interfere with this finding that is based on facts. 9. As regards the second ground urged by Mr Sharma, relating to the deletion of addition of ₹ 3,36,80,000/-, we find that the learned ITAT has observed that during the year under consideration, the Respondent-Assessee has shown prior period income of ₹ 3,36,80,000/- and has further shown prior period expenses amounting to ₹ 1,80,10,000/-. It has also been noticed that the profit and loss account of the Respondent-Assessee shows that it has neither taken the prior period ..... X X X X Extracts X X X X X X X X Extracts X X X X
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