TMI Blog2023 (7) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... 566 - SUPREME COURT ] Assessee made the investments from its interest free funds/ income and it does not come under the purview of Section 14A to make disallowance by the lower authorities. Decided in favour of assessee. - ITA No. 79/JP/2023 - - - Dated:- 4-7-2023 - Shri Sandeep Gosain, JM And Shri Rathod Kamlesh Jayantbhai, AM For the Assessee : Shri S.R. Sharma, CA And Shri R.K. Bhatra, CA For the Revenue : Mrs. Monisha Choudhary, Addl. CIT-DR ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A), National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] dated 25-01-2023 for the assessment year 2015-15 wherein the assessee has raised the following grounds of appeal. 1. That on the facts and in the circumstances of the case the ld CIT (A) is wrong, unjust and has erred in law in upholding the application of provision of sec. 14A of the IT Act. 1961 r/w rule 8D of I.T. Rule. 1962 in the case of the appellant company with respect to investment in shares made by it. 2 The ld CIT(A) is further wrong and has erred in law in upholding disallowance made by the AO us 14A r/w Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd are delt together. These ground relates to objecting the action of Ld. A.O. in applying provisions of sec. 14A of the 1. T. Act, 1961 in respect to investment of Rs. 50,00,000 made by the appellant company during the previous year relevant to assessment year under appeal in shares and further in making disallowance out of expenses claimed by the appellant u/s 14A of the 1. T. Act, 1961 by applying provisions of Rule 8D of the I. T. Rules, 1962 and the consequentially amount disallowed u/s 14A by the ld. AO. The Ld. A.O. in course of assessment proceedings noticed that the assessee has made investment in shares of companies from where no taxable income is earned. Vide show- cause letter dated 24-05- 2016 the assessee was asked that you have made investment in asset from which either exempt income is generated or no income is generated, show cause why the provision of section 14A may not be applied in your case. The Ld. A/R of the assessee has filed written reply on 20-06-2016 stating there as under: The provision of section 14A of 1. T. Act, 1961 are not applicable in case of assessee company because of no exempt income is generated from investment made in shares. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A cannot be made. The Supreme Court against in case of CIT-1 VS. UTI Bank Ltd. (2022) 447 ITR 662/289 Taxmann 238 held that the legal issue relating to disallowance under section 14A was squarely covered by order of Supreme Court in South Indian Bank Ltd. V. CIT [2021] 130 taxmann.com 178/283 Taxman 178/438 ITR 1/10 SCC 153 wherein it was held that since interest free own funds available with the assessee exceeded their investments in tax-free securities, investments would be presumed to be made out of the assessee's own funds and proportionate disallowance was not warranted under section 14A. The Bombay High Court in case Pr. CIT Vs. Shapoorji Pallonji Co. Ltd. (2020) 423 ITR 220/273 Taxmann 167 held that where both interest-free and interest bearing funds were available with assessee, it was to be presumed that investment in shares/securities were made out of interest-free fund. The Bombay High Court in case of CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 and in the same case (2016) 383 ITR 256 held that where an assessee has own funds and other non-interest bearing funds more than investment in tax free securities then no disallowance u/s 14A could be made. In CIT Vs. Gujr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e more than exempt income earned by assessee The Tribunal has held that disallowance under section 14A cannot exceed the tax free income earned by assessee during the relevant previous year [West Bengal Infrastructure Development Finance Corpn. V. Asst. CIT [2016] 45 ITR (Trib.) 285)Kol).] Disallowance under section 14A read with rule 8D should not exceed exempt income [Dy. CIT v. Accel Frontline Ltd. [2016] 46 ITR (Trib.) 138 (Chennai)]. Addition under section 14A cannot be more than exempt income [K. Ratanchand and Co. v. I.T.O [2016] 45 ITR (Trib.) 608 (Ahd.)]. No disallowance can be made under section 14A where no exempt income has been earned by assessee during year it was held by the Punjab and Haryana High Court in the case of CIT v. Lakhani Marketing Income. [2014] 49 taxmann.com 257/226 Taxman 45 is squarely applicable to the facts of the present case, as no exempt income has been earned by the assessee during the year. In view of this, the disallowance deserves to be deleted. [Asstt. CIT v. Pardeep Kumar Aggarwal [2016] 70 taxmann.com 154/159 ITD 54 (Chd.)]. The Circular No. 5 of 2014 dated 11-02-2014 being inconsistent with plethora of decisions of High Courts and ITATS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there is no nexus in between the fresh investment with the interest bearing borrowed funds. The AO has also not denied the said facts. There being no income for shares hence obviously there are no administrative and other expenses incurred. In such facts of the case, no disallowance u/s 14A r.w. rule 8D is warranted as no borrowings were used in acquisition of these shares nor any administrative expenses etc. were incurred. The assessee also not earned exempt income and hence section 14A is inapplicable. To this effect, we rely on the decision of Hon ble Supreme in the case of South Indian Bank Ltd. vs CIT, 438 ITR 1 wherein the Hon ble Supreme Court held as under:- Where interest free own funds available with assessee-banks exceeded their investments in tax free securities; investments would be presumed to be made out of assessee s own funds and proportionate disallowance was not warranted u/s 14A on the ground that separate accounts were not maintained by assessee for investments and other expenditure incurred for earning tax free income. It is worthwhile to mention that the assessee made the investments from its interest free funds/ income and it does not come und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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