TMI Blog2022 (1) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... ules. It is the duty of the assessee to prove that interest was incurred on borrowings are used for the specific business purpose and non-interest bearing funds were utilized for making investments which has given rise to exempted income. The assessee to prove that it is having its own funds to make investment which had yielded exempted income, necessarily has to furnish cash flow statement. The cash flow statement would disclose as on the date of making investments, which had given rise to the exempted income, that the assessee had interest free funds available with it. In the interest of justice and equity, we deed it fit to remand the case to the Assessing Officer for fresh consideration. Grounds raised by assessee stands allowed for statistical purposes. - ITA Nos. 214 to 218/Bang/2021 - - - Dated:- 28-12-2021 - Shri. Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Assessee : Shri Rishabh Singhvi, CA For the Revenue : Shri Sumer Singh Meena, CIT DR (OSD) ORDER PER BENCH Present appeals are filed by assessee against separate orders of Ld.CIT(A)-11, Bangalore all dated 23.03.2021 for Assessment Years 2009-10 to 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end income and disallowable u/s 14A of the Act. This test of attribution has not been passed before invoking provisions of section 14A of the Act. 5. The Ld authorities erred in disallowing the interest of ₹ 2,71,03,420/- u/s 14A of the Act on the following grounds: a. The Company has surplus investible funds from internal accruals and used interest free own funds for investments in the Mutual funds b. The Company has not borrowed funds from the bank for making investments in Mutual funds c. The Company has not incurred any interest expenditure towards the investments in Mutual funds d. The satisfaction recorded by the Ld AO is with a prejudged mind without the basis of any material / evidence in support of the conclusion e. The Ld AO erred in law and facts in invoking Rule 8D of the Income tax Rules and also erred in computing the amount of interest under Rule 8D of the Income tax Rules 6. The Ld authorities erred in disallowing interest expenses of ₹ 55,00,000/- u/s 14A of the Act on the following grounds: a. The Ld AO failed to identify the expenses which are attributable towards the earning of exempt income (if any) and merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, substitution or otherwise, the above grounds of appeal, at any time before or during the hearing of the appeal. 2. Brief facts of the case are as under: The assessee filed return of income on 28/09/2013 declaring NIL income. A search and seizure action u/s 132 of the Act was carried out in the case of the assessee u/s 132 on 04/02/2015 at No. 389, Kaveri Layout, M B Road, Srirangapatna, Mandya. Notice u/s 153A of the IT Act, 1961 dated 26/08/2015 was issued and served on the assessee. In response, the assessee on 19/10/2015 filed a copy of the return of Income filed for AY 2013-14 on 28/09/2013 declaring NIL income. A notice u/s 143(2) of the Act dated 15/07/016 was issued and served on the assessee. 2.1 During assessment proceedings, the Ld.AO observed that assessee earned dividend income of ₹ 1,51,44,574/- which is exempt income. However, no expenditure was disallowed in relation to earning of exempt income. The Ld.AO disallowed expenses to the tune of ₹ 3,26,03,420/- as per provisions of section 14A r.w. Rule 8D. Aggrieved by the order of Ld.AO, the assessee filed appeal before Ld.CIT(A). The Ld.CIT(A) observed as under: 11. Perusal of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods where the bank would make the payment to the overseas suppliers and then grant the finance which is called the supplier s credit . It is also an undisputed fact that investments in mutual funds were granted as security to the bank against the letter of credit that was opened in favour of assessee, based on which the bank granted LC and made payments to the assessee s suppliers. He has brought to our notice the observation by the Ld.AO that the funds were borrowed for working capital purpose, however, the Ld.AO concluded that, there exist nexus between amount invested in mutual funds and interest claimed on bank on letter of credit. He thus submitted that the mutual funds investment by assessee were made from internal accruals / funds and not from the borrowed interest bearing funds. It is thus the submission of Ld.AR that no expenditure could be attributable to the earning of exempt income. 5. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have heard the submissions advanced by both sides and perused the records placed before us. 6. The Ld.AO made disallowance by invoking the provisions of section 14A of the I.T. Act r.w. Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w statement would disclose as on the date of making investments, which had given rise to the exempted income, that the assessee had interest free funds available with it. In the interest of justice and equity, we deed it fit to remand the case to the Assessing Officer for fresh consideration. The Ld.AO shall afford reasonable opportunity of being heard to the assessee. The assessee shall prove its case that it is having interest free funds for making investments, by furnishing cash flow state for the respective assessment years. Accordingly, the grounds raised by assessee stands allowed for statistical purposes. As the disallowance made by the Ld.AO are based on identical facts for assessment years 2009-10, 2010-11, 2011-12 and 2012- 13, the view taken for A.Y: 2013-14 hereinabove applies mutatis mutandis. Accordingly we direct assessee to furnish cash flow statement in support of the contention that investment were made during the relevant period out of interest free funds available with assessee. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly grounds raised in all these appeals are allowed for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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