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TMI Blog2023 (12) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is not in dispute is that the Assessing Officer (AO) made an addition amounting to Rs. 5,06,73,874/- under Section 14A of the Income Tax Act, 1961 [in short, "Act"] read with Rule 8D of the Income Tax Rules, 1962 [in short, "Rules"]. 3. The Commissioner of Income Tax (Appeals) [in short, "CIT(A)"], via the order dated 09.07.2014 confirmed the addition made by the AO. In an appeal preferred by the respondent/assessee with the Tribunal, the addition was deleted. 4. The facts that emerge from the record show that the respondent/assessee in the period in issue i.e., Financial Year (FY) 2007-08 [AY 2008-09] had earned exempt income amounting to Rs. 35,347/-. 4.1 Against the said income, the respondent/assessee had made a suo motu disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of interest expenditure A. Interest expenditure incurred during the year other then (i) above B. Average Value of Investment C. Average of total assets Disallowance = A *B/C 50,642,471 119758172 1,197581172+1564803 5,05,76,386 50,642,471 1197581172 199145975 50,642,471 5,05,76,386 iii Aggregate of Opening and Closing value of Investment (Average Value of Investment) >2% of above as per Rule 8D 1197581172 X 0.5% 5987905 5987905 Total disallowance [ Aggregate of (i), (ii) &(iii)] 5,65,64,291 Therefore, an amount of Rs 5,65,64,291/- have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case." [Emphasis is ours] 7. Therefore, to our minds, the addition made by the AO, which was sustained by the CIT(A), was wholly unsustainable and thus, according to us, the Tribunal correctly deleted the addition. 8. That said, Mr Ruchir Bhatia, learned senior standing counsel, who appears on behalf of the appellant/revenue, at the fag end of the proceedings came up with the argument that the CIT(A) had taken recourse to an alternate rationale based on the provisions of Section 36(1)(iii) of the Act. In this context, our attention was drawn to the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain, who appears on behalf of the respondent/assessee, has drawn our attention to the following tables extracted from the written submissions filed on behalf of the respondent/assessee: Table 1: The details of purchase and sale of shares and, profits, declared and, assessed to tax along with details of mutual fund is as under: Table II: Table III: 10. We may note that the facts and figures in the said tables are not disputed by Mr Bhatia. Notably, although the appellant/revenue was given an opportunity, it chose not to file the written submissions in the matter. 11. It would be evident upon perusal of the information given against Sr. No.(ii) in Table -I above that the respondent/assessee had purchased 11,00,000 shares of Reliance E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs were for the purpose of business. The shares bought from borrowed funds were sold and this profit earned was offered for levy of tax, which was accepted by the appellant/revenue. It is perhaps for this reason that the question proposed by the appellant/revenue does not raise the issue concerning the application of borrowed funds for long-term investment, and hence unavailability of deductions qua interest accrued on it [See Section 36(1)(iii)]. The question, as proposed, is confined to the disallowance of Rs. 5,06,73,874/- made under Section 14A of the Act read with Rule 8D of the Rules. In any event, the well-established principle is that the manner of treatment of an item concerning expenditure and income in the books of accounts or f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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