TMI Blog2019 (7) TMI 1945X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 - PUNJAB HARYANA HIGH COURT] and also with the decision of Hero Cycles (P) Ltd [ 2015 (11) TMI 1314 - SUPREME COURT] wherein, it has been held that if assessee has own funds / interest free funds available with it to make investment, the presumption will be that investment made by the assessee is out of own funds. The issue is also squarely covered by the recent decision of the Hon'ble Supreme Court in CIT (LTU) Vs. Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT] . In view of the above, no disallowance out of interest expenditure is warranted u/s 14A of the Income Tax Act. Application of the substituted provisions of Rule 8D w.e.f. 6.2.2016 by the Ld. CIT(A) is concerned, the issue has been settled by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross appeals, one by the Revenue and other by the assessee, arising out of the order of the Commissioner of Income Tax-1, Ludhiana [hereinafter referred to as CIT(A) ] 2. The Revenue in this appeal has taken the following grounds of appeal :- 1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in directing the AO to recalculate the addition made on account of disallowance u/s. 14A of the Income Tax Act, 1961 by applying the amended provisions of Rule 8D(2)(ii) (@ 1% of the annual average of monthly average of the opening and closing balances of the value of investments, whereas the same amendment was introduced w.e.f. 02.06.2016 and does not have retrospective effect? 2. Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The second issue is relating to the disallowance made by the Assessing Officer u/s 36(1)(iii) of the Act on account of interest expenditure incurred by the assessee on the aforesaid investments which were not relating to the business of the assessee. 4. The Assessing Officer noticed that the assessee during the year had made huge investments and had also earned substantial tax exempt income. However, the assessee had suo motu disallowed a sum of Rs. 1 lac on account of expenditure relatable to earning of tax exempt income u/s 14A of the Act. On being asked to explain in this respect, the assessee pleaded that assessee was having sufficient own / interest free funds to meet the investment, hence, neither any disallowance u/s 14A was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Rule 8D of the I.T. Rules stood substituted by 14th amendment in the rules w.e.f. 2.6.2016. That as per newly amended rules, the disallowance of expenditure u/s 14A was to be calculated, firstly, of the amount of expenditure directly relating to the earing of tax exempt income and further an amount equal to 1% of the annual average of monthly averages of opening and closing balances of the value of investment was to be taken. He noted that there was no direct expenditure incurred by the assessee in relation to the investments, income from which was tax exempt. He, accordingly directed the Assessing Officer to make the disallowance u/s 14A @ 1% of the average value of investment as prescribed under the substituted Rules w.e.f. 2.6.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) in deleting the disallowance u/s 36(1)(iii) of the Act. 9. We have considered the rival submissions. The undisputed facts on the file are that the assessee had demonstrated before the lower authorities that the assessee was possessed of sufficient own / interest free funds to meet the investment in question. The Ld. Counsel for the assessee has also placed reliance in this respect on a chart produced before us to show that the total investment as on 31.3.2013 were at Rs. 13487.26 lacs, whereas, the total investment as on 31.3.2012 were at Rs. 8874.21 lacs and there was a net increase in the investments of the amount to Rs. 4613.05 lacs. The assessee had share capital, reserve and surpluses of Rs. 41328 lacs as on 31.3.2013 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... So far as the application of the substituted provisions of Rule 8D w.e.f. 6.2.2016 by the Ld. CIT(A) is concerned, the issue has been settled by the Hon'ble Supreme court in the case of CIT Vs. Essar Teleholdings Ltd., [2018] 90 taxmann.com 2 (SC),wherein, it has been held that the amended rule 8D of the I.T. Rules is applicable prospectively. 11. So far as the disallowance of administrative expenditure incurred for making the investment is concerned, we find that assessee during the year had made investment in four companies. The rest of the investments were old investments. There is no churning of the portfolios or to say repetitive investments. The assessee suo motu has disallowed a sum of Rs. 1 lacs in this respect. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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