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TMI Blog2021 (9) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, this appeal is dismissed as not pressed. 3. The grounds raised by the Revenue in ITA No.1592/Bang/2017 for Asst.Year 2011-2012, read as follows:- "1. Whether on facts and in circumstances of the case and in law, the CIT(A) was justified in not applying the provisions of Rule 8D2(ii) after upholding the applicability of section 14A. 2. Whether on facts and in circumstances of the case and in law, the CIT(A) was justified in partly allowing the disallowance made by the AO without arriving at the reconciliation of interest to be considered for the purpose of disallowance u/s 14A. 3. Whether the CIT(A) is justified in modifying the disallowance made u/s 14A of the I.T.Act, 1961 when assessee has deficit of own funds for application towards investments in income exempt from tax. 4. Any other grounds which may by urged at the time of hearing." 4. The grounds raised by the assessee in ITA No.1589/ Bang/2017 for Asst. Year 2011-2012, read as follows:- 1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, fact and circumstances of the case. 2. The assessment order passed u/s 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the concerned AY 2010-11, are prejudicial against the appellant to raise huge demand. 9. The learned AO and the Hon'ble CIT[A) failed to note the cross charges of expenditure made by the appellant in the financial statements in respect of the entitles in which investments are made by the appellant. Hence the question of invoking the provisions of Section 14A DOES NOT ARISE because heading of the section 14A states "Expenditure incurred in relation to income not includible in total income." 10. In respect of the question of validity of the proceedings u/s 153A, the Hon'ble CIT[A) in his order has taken cognisance of the decision of the Hon'ble Karnataka High Court in an earlier case "Canara Housing Development Co - 62 Taxmann.com 250 [Kar)" 11. The above cited case law was pertaining to the orders passed by the CIT u/s 263 in respect of one of the Group entities of the appellant and not with regard to proceedings u/s 153A. 12. The Hon'ble CIT[A) has IGNORED the orders of the Hon'ble Karnataka High Court subsequent decision in Lancy Constructions Case which stated [and as quoted by the Hon'ble CIT[A) in his order) that " ... if assessment is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,57,62,950 7. On appeal, the CIT(A) sustained the above amount, by observing as under:- Non convertible debenture-I Kotak Rs. 8,49,86,300 Non convertible debenture-II Kotak Rs. 2,07,94,640 Kotak Mahindra Term loan Rs. 1,60,80,833 ICICI Bank term loan Rs. 4,74,18,684 Saraswat Bank term loan Rs. 21,73,43,110 Reliance Capital vehicle loan Rs. 3,222 SBI vehicle loan Rs. 72,607 Kotak Mahindra Vehicle loan Rs. 1,06,517 Saraswat Bank OD Rs. 33,46,534 Total Rs. 39,01,50,234 "As seen above, the term loans (project specific loans), vehicle loans are clearly for the purpose of business and hence should not be considered for computation of disallowance u/s 14A r.w.r 8D(2)(ii). Only the interest paid on Non convertible debenture (Kotak) and Bank OD interest should be considered for the computation of disallowance u/s 14A r.w.r 8D(2)(ii) as there is no clear nexus with business. There is a jump in investment in shares from Rs. 453,61,66,811 to Rs. 975,55,12,549 and it has already been noticed that the total investments exceed non interest bearing own funds of the assessee by Rs. 371,76l,42,812. Thus, the interest paid on non convertible debenture (Kotak) and Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any interest expenditure can be made. This view was again confirmed by the Hon'ble Bombay High Court in CIT v. HDFC Bank Ltd., ITA No.330 of 2012, judgment dated 23.7.14, wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax free securities, no disallowance of interest expenditure u/s. 14A can be made. 42. In the light of above said decisions, we are of the view that disallowance of interest expenses in the present case of Rs. 49,42,473 made under Rule 8D(2)(ii) of the I.T. Rules should be deleted. We order accordingly." Thereafter, it was held by Hon'ble Karnataka High Court as under:- "The aforesaid shows that the Tribunal has followed a decision of the Bombay High Court in the case of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505/226 Taxman 132 (Mag.)/49 taxmann.com 335 . When the issue is already covered by a decision of the High Court of Bombay with which we concur, we do not find any substantial question of law would arise for consideration as canvassed." Accordingly, we confirm the deletion of disallowance of interest expenses of 8D(2)(ii) of IT Rules 6. The next issue rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The Ld. A.R. submitted that he will not press cross objection, if disallowance u/s 14A of the Act is made on a reasonable figure. However, we notice that the cross objection filed by the assessee is delayed by more than a year. We notice that the assessee has not filed any petition for condoning the delay. Hence, the cross objection filed by the assessee is liable to be dismissed in limine. Accordingly, we decline to admit the cross objection filed by the assessee. 9.1 Further, in assessment year 2014-2015, similar issue came up for consideration before the Tribunal in ITA No.284/ Bang/2020 and the Tribunal vide order dated 24.06.2020, held as under:- 6. We have heard the rival contentions and perused the records. The ground nos. 1, 2, 3, 5, 8 and 9 are general in nature. Ground no.4 is related to non-recording of dissatisfaction. As rightly pointed out that the Ld CIT(A), we notice that the AO has issued show cause notice to the assessee on due examination of financial statements of the assessee, since the assessee did not make any disallowance u/s 14A of the Act, even though it had earned exempt income. Hence the dissatisfaction of the AO has been demonstrated in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firms have earned profit and other firms have incurred loss. She submitted that the A.O. has considered only "share of profit received from partnership firm" for the purposes of sec.14A and did not consider "share of loss divided to the assessee". The Ld A.R submitted that the share of profit/loss from partnership firms should be cumulated and in that case, net result would be only loss from the partnership firms. Hence the AO should have ignored the share of profit received from some of the firms for the purposes of computing disallowance under sec.14A of the Act. We do not find any merit in this contention of the assessee, since what is exempted under the Act is share income received from the partnership firm u/s 10(2A) of the Act, meaning thereby, the profit or loss received from the partnership firm does not enter into computation of income at all. Hence the question of setting off income from partnership firm inter se does not arise. Accordingly, once a particular income does not enter into the computation on the ground the same is exempt, as held by special bench in the case of Sri Vishnu Anand Mahajan (supra), provisions of section 14A of the Act would apply. In this case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urely cannot swallow the entire amount as has happened in this case. We further notice that the Hon'ble Delhi High Court in the case of CIT v. Holcim India (P.) Ltd. (2014) 272 CTR 282 (Delhi) has held that there can be no dis allowance under section 14A in the absence of exempt income. The rationale behind these judgments is that the amount of disallowance cannot exceed exempt income. In this case, on perusal of the facts, we find that the assessee has earned exempt income of Rs. 24,138, whereas the assessing officer disallowed an amount of Rs. 3,36,28,000. Therefore, considering the facts and circumstances of the case and also following the ratios of the case laws discussed above, we are of the view that dis allowance under section 14A cannot exceed the exempt income. Hence, we direct the assessing officer to restrict dis allowance under section 14A to the extent of exempt income earned by the assessee." The above said decisions would support the contention of the assessee on this point. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/a 14A to the amount of exempt income. 12. Since appeal itself is disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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