TMI Blog2022 (4) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein it has been held that where assessee had interest free funds available which exceeds the investment made in tax free fund security then no interest expenditure can be disallowed and it has to be presumed that it is out of assessee's own fund and proportionate disallowance could not warrant under section 14A even where no separate accounts were maintained by the assessee and other expenditure made for earning tax free income It is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it would be not permissible for the Revenue to make an estimation of a proportionate figure. Disallowance could be legally impermissible for the investment made by the assessee in bonds/shares using interest free funds under Section 14A. Thus proportionate disallowance of interest is not warranted under section 14A for investments made in tax-free bonds/securities which yielded tax free dividend and interest to assessee banks where interest free funds are available exceeded their investments. Thus no disallowance on account of section 14A can be made. We find that AO has not recorded his satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,511.09 Reserves Surplus 3,98,754.52 Total interest free funds available 4,94,048.40 Investments : - Shares Mutual Funds etc. on which exempted income is generated 1,92,750.91 Total Investments 1,92,750.91 5. Apart from that, it was submitted that nowhere AO has recorded his satisfaction on why disallowance offered by assessee is incorrect or he has examined the expenditure having regards to books of account. Apart from that, it was also submitted that the Tribunal in assessee's own case for AY 2011-12 has decided the issue in favour of the assessee on the same facts. The entire finding of the ld. CIT(A) in the impugned order, including the finding of the CIT(A) for AY 2012-13 and the finding of the Tribunal in AY 2011-12 which is reproduced in the impugned order, is reproduced as under:- 7.3 I have considered the facts of the case and the submission made by the AR. It has been submitted that the appellant had made suo-moto disallowance of ₹ 14,96, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Assessing Officer has not recorded the dissatisfaction about the disallowance suo-moto made by the appellant and has not identified any expenditure which can be considered to be expended in connection with the investment activity. The appellant has own funds of ₹ 2,48,274.96 lakhs which are far more than the investments of ₹ 2,00,706.72 lakhs. The plain reading of the statutory provisions of section 14A(2) and 14A(3) shows that when the assessee offered the disallowance u/s. 14A, the provisions of Section 14A(2) read with Rule 8D cannot be invoked unless the Assessing Officer is dissatisfied about the correctness of the disallowance so offered. 6.4 In view of this, the addition on this account is restricted to ₹ 3,90,760/- under Rules 8D(2)(ii) (iii) read with section 14A of the Act. Further, it is seen that the Hon'ble ITAT Delhi has allowed the issue in favour of the appellant in AY 2011-12 in ITA No. 2209/Del/2016 vide its order dated 19.06.2018, in which it has been held as under: 14. It is the case of the assessee that it was having interest free funds available to the tune of ₹ 2,95,937/- lacs and has made investment in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule BD or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. ...... 21. Moreover, when the assessee has come up with categoric plea that the entire investment have been made out of its own interest free funds available and the incurred expenses have been suo moto disallowed and the AO has not pointed out any defect in the computation made by the assessee company, provisions contained u/s. 14A read with Rule BD are not attracted which can only be invoked if the AO is not satisfied with the claim of the assessee. 22. So far question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for the purpose of attributing the expenditure for earning exempt income is incorrect having regard to the accounts maintained by the assessee. Interestingly the AO has noted that assessee has not made any disallowance u/s. 14A, therefore, he is not satisfied with the correctness of the assessee even when suo moto disallowance was offered which is evident from the following observations:- Assessee has not made any disallowance u/s. 14A of the Income Tax Act. The undersigned Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. Hence, the disallowance u/s. 14A needs to be recalculated. 8. Thus, it clearly shows that AO has not applied his mind even the working of the assessee and has mechanically proceeded to make the disallowance not only under Rule 8D(2)(ii) and under Rule 8D(2)(iii). 9. First of all, it is not in dispute that assessee had huge interest free funds which have also been noted by the CIT(A). Thus, now in view of the judgments of Hon'ble Supreme Court in the case of South Indian Bank vs. CIT, 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
