TMI Blog2018 (7) TMI 2187X X X X Extracts X X X X X X X X Extracts X X X X ..... can be disallowed but in no case, it should exceed the amount earned claiming exemption. Hon'ble High Court of Punjab Haryana in the case of Pr. Commissioner of Income Tax Vs. Empire Package Pvt. Ltd.,[ 2016 (2) TMI 505 - PUNJAB AND HARYANA HIGH COURT] answered the question raised by Revenue in negative, wherein the Revenue has raised whether in the facts and circumstances of the case, the Hon'ble Tribunal is justified in law to hold the disallowance made u/s. 14A r.w. Rule 8D cannot exceed the exempt income in the absence of any such restriction being there in the relevant section or rule . Similar opinion was also expressed by the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd., [ 2015 (3) TMI 155 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Rule 8D(2)(iii) being administrative expenditure. Assessee objections were negatived by AO. Aggrieved, assessee filed an appeal before the CIT(A). 3. Before the Ld.CIT(A), assessee contended the addition made by the AO. It was contended that no part of the borrowed funds were diverted for investment and assessee had more capital and reserves than the investments. The loans are cash credit loans from bank meant for business only. Furtherassessee had not spent any amount for earning dividend which was only ₹ 1,119/-. Ld.CIT(A) upheld the order of AO by sustaining the disallowance of ₹ 27,07,842/- u/s. 14A r.w. Rule 8D. Aggrieved, assessee is in appeal before us. 4. It was the contention that no part of the borrowed funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that assessee has incurred any expenditure for earning the said dividend income. There was finding on diversion of borrowed funds, hence the disallowance of interest under Rule 8D(2)(ii) does not arise. Assessee had own fund more that the investments. Consequently, disallowance under Rule 8D(2)(ii) has to be deleted. 6.1. Coming to the disallowance of % of average value of investment, some proportionate expenditure can be disallowed but in no case, it should exceed the amount earned claiming exemption. The Hon'ble High Court of Punjab Haryana in the case of Pr. Commissioner of Income Tax Vs. Empire Package Pvt. Ltd., (supra), answered the question raised by Revenue in negative, wherein the Revenue has raised whether in the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on whom lies the onus to establish nexus of available funds with free and taxable income. Similarly courts have held that a finding in objective terms about assessee working being unsatisfactory is to be recorded by AO in the order. Chandigarh Bench of the Tribunal in the case of Punjab State Co-op. Marketing Fed. Ltd. (supra) has held that in any case the disallowance u/s 14A cannot exceed tax free income of the assessee. If mechanical method of rule 8D is applied, it leads to manifestly absurd results in as much as for tax free income of ₹ 68,37,583/- disallowance of ₹ 2,16,51,917 (enhanced by CIT(A) at ₹ 2,19,47,772) is made u/s 14A which is way too much than the exempt income. As the interpretation of provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which assessee earned more than ₹ 19 Lakhs income (as against ₹ 8,100/- of dividend), I am satisfied that the disallowance u/s. 14A should be restricted to the income earned of ₹ 8,100/-. AO is directed accordingly . 6.2. Respectfully following the principles laid down in various judgments of the Hon'ble High Courts and the decisions of the Co-ordinate Benches, we are of the opinion that the disallowance under Rule 8D cannot exceed the dividend income earned and claimed as exempt. Therefore, the disallowance worked out under Rule 8D(iii) being administrative expenditure is restricted to the amount of dividend earned. AO is directed accordingly. Grounds are partly allowed. 7. In the result, appeal of assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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