TMI Blog2024 (2) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... ade out of interest free own funds. HELD THAT:- There is no ambiguity under the law that Section 14A of the Act casts statutory obligation on the Assessing Authority to verify and satisfy itself about the correctness of claim of the assessee regarding suo-motto disallowance or no disallowance at all in relation to expenditure incurred for earning of exempt income. If the AO fails to give clear finding, he would be failing into statutory obligation. In the present case, the AO had not adverted to the objections of the assessee and did not accept the suomotto disallowance made by the assessee. AO failed to take into account that the assessee was having interest free fund. Certain investment did not earn exempt income and some invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO by directly invoking Rule 8D of the Rules, and without recording his satisfaction as to why the suo moto disallowance of Rs. 8,67,500 made by the Appellant was unreasonable and unsatisfactory. 3. On the facts and circumstances of the case, the Hon'ble CIT(A) has erred in disregarding the fact that the investments were made by the Appellant out of its own funds and not out of borrowed funds. 4. On the facts and circumstances of the case, the Hon'ble CIT(A) has erred in disallowing the expenditure to the extent of the exempt dividend income earned without appreciating the fact that expenditure incurred towards earning exempt income was suo moto disallowed by the Appellant and no further expenditure has been incurred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in this appeal is against the sustaining of disallowance made u/s 14A of the Income tax Act, 1961 ( the Act ) to the extent of dividend income. 3. Facts in brief of the case are that the assessee is engaged in the business of digital cinema for AY 2014-15 under consideration. The case of the assessee was selected for scrutiny assessment and the Assessing Officer ( AO ) vide order dated 16.12.2016 passed assessment order u/s 143(2) of the Act, disallowed the expenditure by invoking the provision of section 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 ( the Rules ). Thereby, the AO made disallowance of INR 5,82,53,034/-. However, he assessed the income of the assessee at book profit of INR 36,98,26,537/-. 4. Aggrieved a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend yielding investments to be considered for computation of disallowance u/s 14A of the Act, in terms of the decision of Special Bench of the ITAT, Delhi Tribunal in the case of ACIT vs Vireet Investment Pvt.Ltd. where he restricted the disallowance to the extent of exempt income. He took us through the financial statement to demonstrate that the investments made on non-yielding exempt income and the investment in foreign entities which attracted taxation than the suo motto disallowance made by the assessee would be sufficient. He submitted that Ld.CIT(A) did not advert to the submissions of the assessee. 8. On the other hand, Ld. Sr. DR for the Revenue opposed these submissions and supported the orders of the authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO has not factored in the above principle, it is optimum that disallowance be limited to the maximum of exempt income claimed by the appellant in its return of income for the previous year relevant to the AY 2014-15. This issue has been dealt with by the Hon'ble jurisdictional High Court in judgment cited as Joint Investments Pvt. Ltd. vs. CIT - (2015) 372 ITR 694 (Del.) as under: ........Disallowance under Section 14A read with Rule 80 volunteered Rs.2,97,440/- as attributable under Section 14A for the purpose of disallowance - AO on the basis of his own understanding of Rule 8D of the Income Tax Rules disallowed the sum of Rs. 52,56, 197/- Held that:- In the present case, the AO has not firstly disclosed why the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the assessee regarding exclusion of investments that did not earn dividend income, investments that earned taxable income and investments that were made out of interest free own funds. There is no ambiguity under the law that Section 14A of the Act casts statutory obligation on the Assessing Authority to verify and satisfy itself about the correctness of claim of the assessee regarding suo-motto disallowance or no disallowance at all in relation to expenditure incurred for earning of exempt income. If the AO fails to give clear finding, he would be failing into statutory obligation. In the present case, the AO had not adverted to the objections of the assessee and did not accept the suomotto disallowance made by the assessee. Looking ..... X X X X Extracts X X X X X X X X Extracts X X X X
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