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Facts
The assessee, a Non-Banking Financial Company, appealed against the order of the CIT(A) regarding disallowance under Section 14A read with Rule 8D. The primary issue was the disallowance of expenses, including interest, related to earning exempt income.
Held
The Tribunal held that the Assessing Officer had recorded sufficient satisfaction to invoke Rule 8D. Grounds related to the method of calculation of disallowance were dismissed, while one issue concerning the method of computing disallowance under Rule 8D(2)(ii) and 8D(2)(iii) was restored to the Assessing Officer for fresh computation.
Key Issues
Whether the Assessing Officer had recorded proper satisfaction for invoking Section 14A and Rule 8D, and whether the disallowance was computed correctly as per the statutory provisions and judicial precedents.
Sections Cited
14A, Rule 8D, 10(34), 10(38), 142(1), 115JB
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI OM PRAKASH KANT
ORDER PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 11.07.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:
A) Additional Disallowance u/s. 14A read with Rule 8D, Rs.1,46,29,110/-.
Recording of satisfaction Recording of satisfaction 1) The learned CIT(A) 1) The learned CIT(A) failed to appreciate that the appellant failed to appreciate that the appellant had made the disallowance u/s. 14A on a scientific basis had made the disallowance u/s. 14A on a scientific basis had made the disallowance u/s. 14A on a scientific basis considering direct and indirect expenses and the AO had not considering direct and indirect expenses and the AO had not considering direct and indirect expenses and the AO had not recorded proper satisfaction having regard to the accounts of recorded proper satisfaction having regard to the accounts of recorded proper satisfaction having regard to the accounts of the appellant. Hence, additional dis the appellant. Hence, additional disallowance made by the AO allowance made by the AO u/s. 14A applying Rule 8D was contrary to law hence may be u/s. 14A applying Rule 8D was contrary to law hence may be u/s. 14A applying Rule 8D was contrary to law hence may be directed to be deleted. directed to be deleted. 2) Without prejudice to above during the year only three 2) Without prejudice to above during the year only three 2) Without prejudice to above during the year only three dividend warrants were received and the balance amount was dividend warrants were received and the balance amount was dividend warrants were received and the balance amount was directly credited to the bank directly credited to the bank account hence, disallowance account hence, disallowance which was affirmed by the CIT(A) may be directed to be which was affirmed by the CIT(A) may be directed to be which was affirmed by the CIT(A) may be directed to be deleted. 3) Without prejudice to above the Learned CIT(A) erred in 3) Without prejudice to above the Learned CIT(A) erred in 3) Without prejudice to above the Learned CIT(A) erred in confirming the disallowance made by the AO without following confirming the disallowance made by the AO without following confirming the disallowance made by the AO without following the ratio of the Apex court and Jurisdictiona the ratio of the Apex court and Jurisdictional High Court which l High Court which are referred in the submission made before the CIT(A) are referred in the submission made before the CIT(A) Disallowance of interest under Rule 8D(2)(ii) Disallowance of interest under Rule 8D(2)(ii) 4) The learned CIT(A) erred on facts and in law in confirming 4) The learned CIT(A) erred on facts and in law in confirming 4) The learned CIT(A) erred on facts and in law in confirming the disallowance on account of interest of Rs. 64,42,764/ the disallowance on account of interest of Rs. 64,42,764/ the disallowance on account of interest of Rs. 64,42,764/- while computing while computing the additional disallowance u/s. 14A. the additional disallowance u/s. 14A. 5) The learned CIT(A) failed to appreciate that the appellant 5) The learned CIT(A) failed to appreciate that the appellant 5) The learned CIT(A) failed to appreciate that the appellant had sufficient own funds out of which investments were made had sufficient own funds out of which investments were made had sufficient own funds out of which investments were made and borrowed funds were utilized for funding activities and and borrowed funds were utilized for funding activities and and borrowed funds were utilized for funding activities and hence no disallowance of interest wa hence no disallowance of interest was required under Rule s required under Rule 8D(2)(ii) 6) The learned CIT(A) further failed to appreciate that the 6) The learned CIT(A) further failed to appreciate that the 6) The learned CIT(A) further failed to appreciate that the appellant had received net interest (i.e. reducing interest paid appellant had received net interest (i.e. reducing interest paid appellant had received net interest (i.e. reducing interest paid from interest received) and hence no disallowance was called from interest received) and hence no disallowance was called from interest received) and hence no disallowance was called for on account of interest under Rule for on account of interest under Rule 8D(2)(ii). Without 8D(2)(ii). Without prejudice, not reducing the value of shares on which no prejudice, not reducing the value of shares on which no prejudice, not reducing the value of shares on which no dividend received dividend received 7) Without prejudice to the above, the learned CIT(A) erred on 7) Without prejudice to the above, the learned CIT(A) erred on 7) Without prejudice to the above, the learned CIT(A) erred on facts and in law in not dealing with the contention of the facts and in law in not dealing with the contention of the facts and in law in not dealing with the contention of the appellant and directing the AO to reduce appellant and directing the AO to reduce the value of shares the value of shares on which no dividend was received, while computing on which no dividend was received, while computing on which no dividend was received, while computing disallowance as per Rule 8D.
Briefly stated, the facts of the case are that Briefly stated, the facts of the case are that the assessee is a the assessee is a Non-Banking Financial Company engaged in the business of Banking Financial Company engaged in the business of Banking Financial Company engaged in the business of investments, investment services and investment holding. For the investments, investment services and investment holding. For the investments, investment services and investment holding. For the year under consideration, the assessee filed its return of income on year under consideration, the assessee filed its return of income on year under consideration, the assessee filed its return of income on 28.09.2015 declaring a total income of ₹1,66,27,330/ 28.09.2015 declaring a total income of 7,330/-. The return so filed was selected for scrutiny and, accordingly, statutory notices so filed was selected for scrutiny and, accordingly, statutory notices so filed was selected for scrutiny and, accordingly, statutory notices under the Income-tax Act, 1961 (hereinafter referred to as “the Act”) tax Act, 1961 (hereinafter referred to as “the Act”) tax Act, 1961 (hereinafter referred to as “the Act”) were issued and duly complied with. were issued and duly complied with.
2.1 During the course of assessment proceedings, the Assess During the course of assessment proceedings, the Assess During the course of assessment proceedings, the Assessing Officer observed that the assessee had earned dividend income of Officer observed that the assessee had earned dividend income of Officer observed that the assessee had earned dividend income of ₹25,90,98,299/-, claimed as exempt under section 10(34) of the , claimed as exempt under section 10(34) of the , claimed as exempt under section 10(34) of the term capital gains of ₹5,74,602/-, claimed as exempt Act, and long-term capital gains of , claimed as exempt under section 10(38) of the Act. In the computation of income, the under section 10(38) of the Act. In the computation under section 10(38) of the Act. In the computation assessee had suo-motu motu worked out disallowance under section 14A worked out disallowance under section 14A at ₹19,79,144/-, along with Securities Transaction Tax (STT) of , along with Securities Transaction Tax (STT) of , along with Securities Transaction Tax (STT) of ₹2,36,056/- and demat charges of and demat charges of ₹40,698/-.
2.2 However, the return of income did not contain any details or However, the return of income did not contain any details or However, the return of income did not contain any details or working supporting the disallowance of upporting the disallowance of ₹19,79,144/ 19,79,144/-. It was explained by the assessee that one employee was entrusted with explained by the assessee that one employee was entrusted with explained by the assessee that one employee was entrusted with investment-related activities and had devoted 68 out of 240 working related activities and had devoted 68 out of 240 working related activities and had devoted 68 out of 240 working days during the year to such activities. On that basis, a sum of days during the year to such activities. On that basis, a sum of days during the year to such activities. On that basis, a sum of ₹3,90,000/- from the employee’s total compensation was allocated from the employee’s total compensation was allocated from the employee’s total compensation was allocated as expenditure incurred for earning exempt income. Further, an as expenditure incurred for earning exempt income. Further, an as expenditure incurred for earning exempt income. Further, an amount of ₹3,00,000/ 3,00,000/- paid as commission to members of the paid as commission to members of the Investment Committee was also attributed towards earning exempt Investment Committee was also attributed towards earning exempt Investment Committee was also attributed towards earning exempt income. The assessee thereafter apportioned general administrative sessee thereafter apportioned general administrative sessee thereafter apportioned general administrative expenses in the ratio of such expenses to salary cost, arriving at a expenses in the ratio of such expenses to salary cost, arriving at a expenses in the ratio of such expenses to salary cost, arriving at a figure of ₹12,89,144/ 12,89,144/-.
2.3 Thus, it was submitted that the total disallowance under Thus, it was submitted that the total disallowance under Thus, it was submitted that the total disallowance under section 14A amounting to ₹22,55,878/- comprised ( section 14A amounting to comprised (i) employee cost of ₹3,90,000/-, (ii) Investment Committee expenses of , (ii) Investment Committee expenses of ₹3,00,000/-, , (ii) Investment Committee expenses of (iii) other proportionate expenses of ₹14,89,144/ (iii) other proportionate expenses of 14,89,144/-, (iv) demat charges of ₹40,698/- -, and (v) STT of ₹2,36,038/-.
2.4 The Assessing Officer, however, was not satisfied with the The Assessing Officer, however, was not satisfied with the The Assessing Officer, however, was not satisfied with the explanation furnished. In particular, vide notice issued under explanation furnished. In particular, vide notice issued under explanation furnished. In particular, vide notice issued under section 142(1), the assessee was required to justify the basis on section 142(1), the assessee was required to justify the basis on section 142(1), the assessee was required to justify the basis on which only 25% of the commission paid to Investment Committee which only 25% of the commission paid to Investment Committee which only 25% of the commission paid to Investment Committee members had been considered for disallowance. As no satisfactory s had been considered for disallowance. As no satisfactory s had been considered for disallowance. As no satisfactory justification was forthcoming, the Assessing Officer proceeded to justification was forthcoming, the Assessing Officer proceeded to justification was forthcoming, the Assessing Officer proceeded to apply Rule 8D of the Income apply Rule 8D of the Income-tax Rules, 1962 and computed the tax Rules, 1962 and computed the disallowance at ₹1,66,08,254/ 1,66,08,254/-, as under: Sr. Particulars Amount (Rs.) Amount No. (i) 22,55,878 22,55,878 The amount of expenditure directly The amount of expenditure directly relating to income which does not form relating to income which does not form part of the total income part of the total income (A) (ii) Amount of expenditure by way of Amount of expenditure by way of interest excluding Bank charges/ interest excluding Bank charges/ commission commission Interest paid 89,93,753/- (A) Interest paid (B) Average value of investment Average value of investment a. 1674950606/- Net investment at the end of the year Net investment at the end of the year (current + non-current investment) (current + non b. Net investment at the beginning of the 1488894216/- Net investment at the beginning of the year Average Investment = (a+b)/2 1581922411/ (B) Average Investment = (a+b)/2 (C) Total assets (Fixed assets + Investment Total assets + Current assets) + Current assets) a. Total assets at the end of the year 2315955906/- Total assets at the end of the year b. Total assets at the beginning of the 2100601225/- Total assets at the beginning of the year Average Total Assets (a+b)/2 2208278565/- (C) Average Total Assets (a+b)/2 AX B/C 64,42,764/- 64,42,764/ (iii) 79,09,612/- 79,09,612/ 0.5% of the average value of 0.5% of the investment, the income from which investment, the income from which does not form part of total income does not form part of total income 1,66,08,254/- 1,66,08,254/ llowance is aggregate of (i) + Total disallowance is aggregate of (i) + (ii) + (iii) 3. On further appeal, the Ld. CIT(A) rejected the contention of the On further appeal, the Ld. CIT(A) rejected the contention of the On further appeal, the Ld. CIT(A) rejected the contention of the assessee and upheld the disallowance however allowed part relief in assessee and upheld the disallowance however allowed part assessee and upheld the disallowance however allowed part respect of disallowance u/s 14A while computing book profit u/s respect of disallowance u/s 14A while computing book profit u/s respect of disallowance u/s 14A while computing book profit u/s 115JB of the Act.
Aggrieved by the aforesaid assessment, the assessee has Aggrieved by the aforesaid assessment, the assessee has Aggrieved by the aforesaid assessment, the assessee has preferred the present appeal and has raised grounds of challenge as preferred the present appeal and has raised grounds of challenge as preferred the present appeal and has raised grounds of challenge as reproduced hereinabove. The assessee has also placed on record a reproduced hereinabove. The assessee has also placed on record a reproduced hereinabove. The assessee has also placed on record a Paper Book running from pages 1 to 110. The learned counsel for Paper Book running from pages 1 to 110. The learned counsel for Paper Book running from pages 1 to 110. The learned counsel for the assessee drew our attention to the order of the Co assessee drew our attention to the order of the Co assessee drew our attention to the order of the Co-ordinate Bench of the Tribunal in the assessee’s own case in of the Tribunal in the assessee’s own case in of the Tribunal in the assessee’s own case in for the assessment year 2012 5454/Mum/2018 for the assessment year 2012-13, and submitted 13, and submitted that, in the year under appeal, the Assessing Officer had invoked that, in the year under appeal, the Assessing Officer had invoked that, in the year under appeal, the Assessing Officer had invoked Rule 8D without first recording the requisite dissatisfaction without first recording the requisite dissatisfaction without first recording the requisite dissatisfaction regarding the correctness of the assessee’s claim of expenditure regarding the correctness of the assessee’s claim of expenditure regarding the correctness of the assessee’s claim of expenditure relatable to exempt income. According to the learned counsel, the relatable to exempt income. According to the learned counsel, the relatable to exempt income. According to the learned counsel, the absence of such recorded dissatisfaction renders the application of absence of such recorded dissatisfaction renders the application of absence of such recorded dissatisfaction renders the application of Rule 8D unsustainable in law. The learned counsel further invited e 8D unsustainable in law. The learned counsel further invited e 8D unsustainable in law. The learned counsel further invited our attention to the com our attention to the computation and working of the putation and working of the suo-motu disallowance furnished by the assessee, placed at page 45 of the disallowance furnished by the assessee, placed at page 45 of the disallowance furnished by the assessee, placed at page 45 of the Paper Book, and also relied upon the detailed submissions made Paper Book, and also relied upon the detailed submissions made Paper Book, and also relied upon the detailed submissions made before the Assessing Officer explaining the basi re the Assessing Officer explaining the basis and rationale of s and rationale of the said suo-motu disallowance. disallowance.
On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) On the contrary, the Ld. Departmental Representative (DR) relied on the order of the lower authorities. relied on the order of the lower authorities.
Ground No. 1: Non Ground No. 1: Non-recording of Proper Satisfaction un recording of Proper Satisfaction under Section 14A
We have given our thoughtful consideration to Ground No. 1, We have given our thoughtful consideration to Ground No. 1, We have given our thoughtful consideration to Ground No. 1, wherein the assessee assails the action of the Assessing Officer in wherein the assessee assails the action of the Assessing Officer in wherein the assessee assails the action of the Assessing Officer in invoking Rule 8D without recording the requisite satisfaction as invoking Rule 8D without recording the requisite satisfaction as invoking Rule 8D without recording the requisite satisfaction as contemplated under section 14A(2) of the Act contemplated under section 14A(2) of the Act. The learned CIT(A) . The learned CIT(A) has dealt with this objection in considerable detail and has has dealt with this objection in considerable detail and has has dealt with this objection in considerable detail and has returned findings in the following terms: returned findings in the following terms:
“Ground no B. the first and foremost objection is that the AO has Ground no B. the first and foremost objection is that the AO has Ground no B. the first and foremost objection is that the AO has not recorded satisfaction and therefore as per principles laid not recorded satisfaction and therefore as per principles laid not recorded satisfaction and therefore as per principles laid down by various judicial decisions, the addition is liable to be down by various judicial decisions, the addition is liable to be down by various judicial decisions, the addition is liable to be deleted. However, it noted from the assessment order that the deleted. However, it noted from the assessment order that the deleted. However, it noted from the assessment order that the Assessing officer has duly recorded the reasons: Assessing officer has duly recorded the reasons: "4.9 The fact of the above case are applicable in the case of the "4.9 The fact of the above case are applicable in the case of the "4.9 The fact of the above case are applicable in the case of the assessee. The assessee. The assessee has also admitted that the disallowance assessee has also admitted that the disallowance has to be worked out regarding exempt income in their case as has to be worked out regarding exempt income in their case as has to be worked out regarding exempt income in their case as per section 14A. The same is evident from disallowance of Rs. per section 14A. The same is evident from disallowance of Rs. per section 14A. The same is evident from disallowance of Rs. 19,79, 144/ offered by them in the computation of income. The 19,79, 144/ offered by them in the computation of income. The 19,79, 144/ offered by them in the computation of income. The said disallowance is said disallowance is worked out by only estimating the worked out by only estimating the employce's employce's employce's benefit benefit benefit expenses expenses expenses and and and general general general administrative administrative administrative expenses. Further, it is seen from the submission filed by expenses. Further, it is seen from the submission filed by expenses. Further, it is seen from the submission filed by assessee assessee assessee vide vide vide letter letter dated letter dated 19.12.2017 dated 19.12.2017 19.12.2017 that that that during during during the the the assessment, assessee has himself produced a working of assessment, assessee has himself produced a working of assessment, assessee has himself produced a working of Rs.22,55,878/ Rs.22,55,878/- after including security transaction tax of after including security transaction tax of Rs.2,36,036/ Rs.2,36,036/- and demat charges of Rs.40,698/ and demat charges of Rs.40,698/- as the expenses which directly attributable to the exempt income. This expenses which directly attributable to the exempt income. This expenses which directly attributable to the exempt income. This proves that the assessee is himself not sure of the disallowance proves that the assessee is himself not sure of the disallowance proves that the assessee is himself not sure of the disallowance which is to b which is to be made u/s 14A and hence, furnished different e made u/s 14A and hence, furnished different quantum of disallowance in ITR and during assessment quantum of disallowance in ITR and during assessment quantum of disallowance in ITR and during assessment proceedings. This clearly goes on to show that assessee has not proceedings. This clearly goes on to show that assessee has not proceedings. This clearly goes on to show that assessee has not worked out the disallowance as per Rule8D. Constitutional worked out the disallowance as per Rule8D. Constitutional worked out the disallowance as per Rule8D. Constitutional validity of which has been upheld b validity of which has been upheld by the Hon'ble Bombay High y the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (Supra), and in Court in the case of Godrej & Boyce Mfg. Co. Ltd. (Supra), and in Court in the case of Godrej & Boyce Mfg. Co. Ltd. (Supra), and in such a scenario, the claim of assessee of making disallowance as such a scenario, the claim of assessee of making disallowance as such a scenario, the claim of assessee of making disallowance as per scientific method, sound rather hollow. per scientific method, sound rather hollow. 4.10 The assessee in his reply has also submitted that 4.10 The assessee in his reply has also submitted that 4.10 The assessee in his reply has also submitted that in assessee's own case for A.Y. 2008 assessee's own case for A.Y. 2008-09, Hon'ble ITAT has directed 09, Hon'ble ITAT has directed the A.O. to re the A.O. to re-compute the disallowance excluding strategic compute the disallowance excluding strategic investment. However, the department has already filed the investment. However, the department has already filed the investment. However, the department has already filed the appeal before the Hon'ble High Court, Mumbai against judgement appeal before the Hon'ble High Court, Mumbai against judgement appeal before the Hon'ble High Court, Mumbai against judgement of the Hon'ble ITAT especially in the light of judgement of Hon'ble on'ble ITAT especially in the light of judgement of Hon'ble on'ble ITAT especially in the light of judgement of Hon'ble Karnataka High Court in the case of United Breweries Ltd v/s. Karnataka High Court in the case of United Breweries Ltd v/s. Karnataka High Court in the case of United Breweries Ltd v/s. DCIT(72 taxmann.com 102 dated 31.05.2016), wherein it is held DCIT(72 taxmann.com 102 dated 31.05.2016), wherein it is held DCIT(72 taxmann.com 102 dated 31.05.2016), wherein it is held that section 14A is applicable even where the motive of the that section 14A is applicable even where the motive of the that section 14A is applicable even where the motive of the assessee in enquiring the shares is to obtain controlling interest enquiring the shares is to obtain controlling interest enquiring the shares is to obtain controlling interest in a company and not to earn dividends. In the said case, while in a company and not to earn dividends. In the said case, while in a company and not to earn dividends. In the said case, while deciding the appeal of the assessee against applicability of deciding the appeal of the assessee against applicability of deciding the appeal of the assessee against applicability of section 14A, Hon'ble High court mentioned that ITAT has section 14A, Hon'ble High court mentioned that ITAT has section 14A, Hon'ble High court mentioned that ITAT has correctly followed t correctly followed the judgement of Special Bench in ITO v/s he judgement of Special Bench in ITO v/s Daga Capital Management Pvt. Ltd. (2009) 310 ITR (AR) 1 and Daga Capital Management Pvt. Ltd. (2009) 310 ITR (AR) 1 and Daga Capital Management Pvt. Ltd. (2009) 310 ITR (AR) 1 and held that section 14A is applicable even where the motive in held that section 14A is applicable even where the motive in held that section 14A is applicable even where the motive in acquiring the shares was to obtain controlling interest in the acquiring the shares was to obtain controlling interest in the acquiring the shares was to obtain controlling interest in the companies. 4.11 Further, on the 4.11 Further, on the issue of disallowance of interest expenses issue of disallowance of interest expenses attributable to the exempt income, the assessee has not given attributable to the exempt income, the assessee has not given attributable to the exempt income, the assessee has not given any submission despite the fact that assessee was given specific any submission despite the fact that assessee was given specific any submission despite the fact that assessee was given specific show cause notice on the issue of disallowance u/s 14A. Further, show cause notice on the issue of disallowance u/s 14A. Further, show cause notice on the issue of disallowance u/s 14A. Further, it is seen that the it is seen that the assessee has debited interest expense to the assessee has debited interest expense to the tune of Rs.89,93,753/ tune of Rs.89,93,753/-in P&L which was at Rs. 'NIL' in A.Y. in P&L which was at Rs. 'NIL' in A.Y. 2013-14 & Α.Υ. 2012 14 & Α.Υ. 2012-13. Also, during the year short term 13. Also, during the year short term borrowings have increased from Rs. 'NIL' to Rs. 11,00,00,000/ borrowings have increased from Rs. 'NIL' to Rs. 11,00,00,000/ borrowings have increased from Rs. 'NIL' to Rs. 11,00,00,000/-
Also, the investments during th Also, the investments during the year have increased from Rs. e year have increased from Rs. 1,48,88,94,216/ 1,48,88,94,216/- to Rs.1,67,49,50,606/. As per the Cash Flow to Rs.1,67,49,50,606/. As per the Cash Flow Statement filed by assessee as part of the financial statements, Statement filed by assessee as part of the financial statements, Statement filed by assessee as part of the financial statements, the net cash flow from operating activities as well as net cash the net cash flow from operating activities as well as net cash the net cash flow from operating activities as well as net cash flow from investment activities is flow from investment activities is negative. The only Positive cash negative. The only Positive cash flow in from Financial Activities, wherein the proceeds from short flow in from Financial Activities, wherein the proceeds from short flow in from Financial Activities, wherein the proceeds from short term borrowing are the main source of funding. Also, the term borrowing are the main source of funding. Also, the term borrowing are the main source of funding. Also, the assessee during the assessment proceeding has not brought any assessee during the assessment proceeding has not brought any assessee during the assessment proceeding has not brought any material on record to prove that the material on record to prove that the borrowed/interest bearing borrowed/interest bearing funds were not used for the purpose of making investments. funds were not used for the purpose of making investments. funds were not used for the purpose of making investments. Therefore, by not making a disallowance on the interest part, the Therefore, by not making a disallowance on the interest part, the Therefore, by not making a disallowance on the interest part, the assessee has failed to follow the provision of disallowance u/s assessee has failed to follow the provision of disallowance u/s assessee has failed to follow the provision of disallowance u/s 14A r.w.r. 8D. It is also to be noted tha 14A r.w.r. 8D. It is also to be noted that the disallowance u/s t the disallowance u/s 14A related to interest part in case of A.Y. 2012 14A related to interest part in case of A.Y. 2012-13 & A.Y. 2013 13 & A.Y. 2013- 14 could not be done only because of the fact that there was no 14 could not be done only because of the fact that there was no 14 could not be done only because of the fact that there was no interest expenses claimed by the assessee for those assessment interest expenses claimed by the assessee for those assessment interest expenses claimed by the assessee for those assessment years. 4.12 In view of the above, I am no 4.12 In view of the above, I am not satisfied with the computation t satisfied with the computation of the assessee for working out of disallowance u/s. 14A. of the assessee for working out of disallowance u/s. 14A. of the assessee for working out of disallowance u/s. 14A. Though the assessee has agreed that the disallowance has to be Though the assessee has agreed that the disallowance has to be Though the assessee has agreed that the disallowance has to be worked out for exempt income but they have not followed the worked out for exempt income but they have not followed the worked out for exempt income but they have not followed the disallowance as per section 14A r.w.r. 8D( disallowance as per section 14A r.w.r. 8D(2) of Income Tax Act, 2) of Income Tax Act, 1961. In view of the above the disallowance made by the 1961. In view of the above the disallowance made by the 1961. In view of the above the disallowance made by the assessee is not acceptable and disallowance as per rule 8D is assessee is not acceptable and disallowance as per rule 8D is assessee is not acceptable and disallowance as per rule 8D is worked as under." worked as under." After citing all the reasons, the AO has clearly specified in Para After citing all the reasons, the AO has clearly specified in Para After citing all the reasons, the AO has clearly specified in Para 4.12 that he is not satisfied. 4.12 that he is not satisfied. Therefore, the discussion at length Therefore, the discussion at length by the appellant that the satisfaction has not been recorded is by the appellant that the satisfaction has not been recorded is by the appellant that the satisfaction has not been recorded is not correct. Therefore, the application of rule 8D in computing the not correct. Therefore, the application of rule 8D in computing the not correct. Therefore, the application of rule 8D in computing the disallowance is correct. This ground of the appellant is, disallowance is correct. This ground of the appellant is, disallowance is correct. This ground of the appellant is, therefore, rejected. rejected.” 6.1 Upon a careful perusal of the above reasoning, we find that the a careful perusal of the above reasoning, we find that the a careful perusal of the above reasoning, we find that the Assessing Officer has, in unmistakable terms, recorded his Assessing Officer has, in unmistakable terms, recorded his Assessing Officer has, in unmistakable terms, recorded his dissatisfaction with the correctness of the assessee’s claim. The dissatisfaction with the correctness of the assessee’s claim. T dissatisfaction with the correctness of the assessee’s claim. T Assessing Officer has, Assessing Officer has, inter-alia, noted that the assessee itself , noted that the assessee itself furnished differing figures of disallowance shed differing figures of disallowance—first in the return of first in the return of income and thereafter during the assessment proceedings—and income and thereafter during the assessment proceedings income and thereafter during the assessment proceedings that the assessee failed to demonstrate that its working was in that the assessee failed to demonstrate that its working was in that the assessee failed to demonstrate that its working was in conformity with Rule 8D. The Assessing Officer further recorded conformity with Rule 8D. The Assessing Officer further recorded conformity with Rule 8D. The Assessing Officer further recorded that the assessee neither substantiated the basis of allocation of he assessee neither substantiated the basis of allocation of he assessee neither substantiated the basis of allocation of employee cost and administrative expenditure nor gave any employee cost and administrative expenditure nor gave any employee cost and administrative expenditure nor gave any explanation regarding the non explanation regarding the non-disallowance of interest expenditure disallowance of interest expenditure despite a substantial increase in interest despite a substantial increase in interest-bearing borrowings and bearing borrowings and investments during the relevant year. These findings, duly extracted stments during the relevant year. These findings, duly extracted stments during the relevant year. These findings, duly extracted in paragraph 4.12 of the assessment order, constitute a clear and in paragraph 4.12 of the assessment order, constitute a clear and in paragraph 4.12 of the assessment order, constitute a clear and reasoned satisfaction as required under the statute. reasoned satisfaction as required under the statute.
6.12 We have examined the assessment order as well as the We have examined the assessment order as well as the We have examined the assessment order as well as the material placed on record. It is evident that the Assessing Officer d on record. It is evident that the Assessing Officer d on record. It is evident that the Assessing Officer specifically called upon the assessee to justify the basis on which specifically called upon the assessee to justify the basis on which specifically called upon the assessee to justify the basis on which only 25% of the commission paid to members of the Investment only 25% of the commission paid to members of the Investment only 25% of the commission paid to members of the Investment Committee had been included in the ee had been included in the suo-motu disallowance. The disallowance. The assessee, however, was unable to furnish any cogent explanation. owever, was unable to furnish any cogent explanation. owever, was unable to furnish any cogent explanation. Even before us, when attention was drawn to page 45 of the Paper Even before us, when attention was drawn to page 45 of the Paper Even before us, when attention was drawn to page 45 of the Paper Book containing the details of the ntaining the details of the suo-motu disallowance, the disallowance, the learned counsel could not place any evidence to support the learned counsel could not place any evidence to support the learned counsel could not place any evidence to support the assertion that the concerned employee had devoted 60 days to the concerned employee had devoted 60 days to the concerned employee had devoted 60 days to investment-related activity. The allocation, therefore, was purely ad related activity. The allocation, therefore, was purely ad related activity. The allocation, therefore, was purely ad hoc and devoid of evidentiary foundation. hoc and devoid of evidentiary foundation. Similarly, no rationale Similarly, no rationale was furnished for restricting the disallowance of commission to 25% was furnished for restricting the disallowance of commission to 25% was furnished for restricting the disallowance of commission to 25% or for apportioning general administrative expenditure merely on or for apportioning general administrative expenditure merely on or for apportioning general administrative expenditure merely on the basis of salary ratios. In these circumstances, the Assessing the basis of salary ratios. In these circumstances, the Assessing the basis of salary ratios. In these circumstances, the Assessing Officer was justified in treating Officer was justified in treating the assessee’s working as the assessee’s working as unsatisfactory and in consequently invoking Rule 8D. unsatisfactory and in consequently invoking Rule 8D. unsatisfactory and in consequently invoking Rule 8D.
6.13 The learned counsel has placed reliance on the judgment of The learned counsel has placed reliance on the judgment of The learned counsel has placed reliance on the judgment of the Hon’ble Bombay High Court in Tata Chemicals Ltd. Tata Chemicals Ltd. (475 ITR the Hon’ble Bombay High Court in 559), to contend that in the absence of proper sat to contend that in the absence of proper satisfaction Rule 8D isfaction Rule 8D cannot be applied. We respectfully affirm the legal principle cannot be applied. We respectfully affirm the legal principle cannot be applied. We respectfully affirm the legal principle enunciated therein. Nonetheless, the application of that principle enunciated therein. Nonetheless, the application of that principle enunciated therein. Nonetheless, the application of that principle necessarily depends upon the facts of each case. Here, satisfaction necessarily depends upon the facts of each case. Here, satisfaction necessarily depends upon the facts of each case. Here, satisfaction has in fact been recorded, and recorded w has in fact been recorded, and recorded with reasons. Moreover, as ith reasons. Moreover, as clarified by the Hon’ble Delhi High Court in Indiabulls Investment Indiabulls Investment clarified by the Hon’ble Delhi High Court in Pvt. Ltd. v. Dy. CIT T [2017] 395 ITR 242, where the Assessing where the Assessing Officer undertakes a detailed analysis and follows the statutory Officer undertakes a detailed analysis and follows the statutory Officer undertakes a detailed analysis and follows the statutory procedure in computing the disallowan procedure in computing the disallowance, the mere absence of an ce, the mere absence of an express recital of dissatisfaction cannot vitiate the disallowance, if express recital of dissatisfaction cannot vitiate the disallowance, if express recital of dissatisfaction cannot vitiate the disallowance, if such dissatisfaction is otherwise evident from the assessment order such dissatisfaction is otherwise evident from the assessment order such dissatisfaction is otherwise evident from the assessment order itself.
6.14 Having regard to the totality of the circumstances, we find no Having regard to the totality of the circumstances, we find no Having regard to the totality of the circumstances, we find no error in the order of the learned CIT(A) in holding that the Assessing rder of the learned CIT(A) in holding that the Assessing rder of the learned CIT(A) in holding that the Assessing Officer had duly recorded his dissatisfaction for the purposes of Officer had duly recorded his dissatisfaction for the purposes of Officer had duly recorded his dissatisfaction for the purposes of section 14A and was justified in invoking Rule 8D. Accordingly, section 14A and was justified in invoking Rule 8D. section 14A and was justified in invoking Rule 8D. Ground No. 1 raised by the assessee stands dismissed. Ground No. 1 raised by the assessee stands dismissed. Ground No. 1 raised by the assessee stands dismissed.
In Ground No. 2 . 2, the assessee contends that, since only three 7. , the assessee contends that, since only three dividend warrants were received by way of physical cheques and the dividend warrants were received by way of physical cheques and the dividend warrants were received by way of physical cheques and the balance dividend income stood directly credited to the bank balance dividend income stood directly credited to the bank balance dividend income stood directly credited to the bank account, no further disallowance was warranted. account, no further disallowance was warranted.
7.1 Having regard to our findin Having regard to our findings while adjudicating Ground No. gs while adjudicating Ground No. 1, and in view of the fact that the Assessing Officer has already 1, and in view of the fact that the Assessing Officer has already 1, and in view of the fact that the Assessing Officer has already invoked Rule 8D for the purpose of computing the disallowance invoked Rule 8D for the purpose of computing the disallowance invoked Rule 8D for the purpose of computing the disallowance under section 14A, we are of the considered view that the assessee’s under section 14A, we are of the considered view that the assessee’s under section 14A, we are of the considered view that the assessee’s present contention does no present contention does not survive for separate adjudication. Once t survive for separate adjudication. Once Rule 8D has been validly applied, the quantum of disallowance is to Rule 8D has been validly applied, the quantum of disallowance is to Rule 8D has been validly applied, the quantum of disallowance is to be determined strictly in accordance with the statutory mechanism, be determined strictly in accordance with the statutory mechanism, be determined strictly in accordance with the statutory mechanism, and the nature or mode of receipt of dividend and the nature or mode of receipt of dividend—whether by cheque whether by cheque or by direct credit—does not, in law, obviate the applicability of Rule does not, in law, obviate the applicability of Rule does not, in law, obviate the applicability of Rule 8D. Accordingly, this ground raised by the assessee is devoid of Accordingly, this ground raised by the assessee is devoid of Accordingly, this ground raised by the assessee is devoid of merit and is dismissed. merit and is dismissed.
In Ground No. 3 Ground No. 3, the learned counsel for the assessee has 8. , the learned counsel for the assessee has preme Court and merely urged that the decisions of the Hon’ble Su merely urged that the decisions of the Hon’ble Supreme Court and the Jurisdictional High Court be duly considered. We note that the the Jurisdictional High Court be duly considered. We note that the the Jurisdictional High Court be duly considered. We note that the legal principles emanating from the said authorities have already legal principles emanating from the said authorities have already legal principles emanating from the said authorities have already been taken into account and applied by us while adjudicating been taken into account and applied by us while adjudicating been taken into account and applied by us while adjudicating Ground No. 1 of the appeal. Ground No. 1 of the appeal. In view thereof, no separate issue In view thereof, no separate issue survives for adjudication under this ground. Accordingly, Ground Accordingly, Ground survives for adjudication under this ground. No. 3 stands dismissed. No. 3 stands dismissed.
In Ground Nos. 4 and 5 Ground Nos. 4 and 5, the assessee has challenged the , the assessee has challenged the disallowance of interest amounting to ₹64,42,764/ disallowance of interest amounting to 64,42,764/– computed under Rule 8D(2)(ii) of the Income (2)(ii) of the Income-tax Rules.
9.1 Before the learned CIT(A), the assessee contended that it Before the learned CIT(A), the assessee contended that it Before the learned CIT(A), the assessee contended that it possessed sufficient own funds for making investments and, possessed sufficient own funds for making investments and, possessed sufficient own funds for making investments and, therefore, no part of the interest expenditure could be said to be therefore, no part of the interest expenditure could be said to be therefore, no part of the interest expenditure could be said to be attributable to earning exempt inco attributable to earning exempt income. Reliance was placed on the me. Reliance was placed on the reserves and surplus reflected in the balance sheet. The learned reserves and surplus reflected in the balance sheet. The learned reserves and surplus reflected in the balance sheet. The learned CIT(A), however, undertook a detailed examination of the cash flow CIT(A), however, undertook a detailed examination of the cash flow CIT(A), however, undertook a detailed examination of the cash flow statement for the relevant year and found that the assessee’s statement for the relevant year and found that the assessee’s statement for the relevant year and found that the assessee’s contention was inconsistent wit contention was inconsistent with the financial realities disclosed h the financial realities disclosed therein. It was noted that the net cash flow from both operating and therein. It was noted that the net cash flow from both operating and therein. It was noted that the net cash flow from both operating and investing activities was negative, and that the only significant investing activities was negative, and that the only significant investing activities was negative, and that the only significant positive cash flow arose from short positive cash flow arose from short-term borrowings amounting to term borrowings amounting to ₹11 crores—borrowings borrowings which coincided with an increase in the which coincided with an increase in the investment portfolio during the year. investment portfolio during the year. The relevant finding of the Ld. The relevant finding of the Ld. CIT(A) is reproduced as under: CIT(A) is reproduced as under:
“Ground D relates to the interest disallowance amount at Ground D relates to the interest disallowance amount at Ground D relates to the interest disallowance amount at Rs.64,42,764/ Rs.64,42,764/- u/s, 14A read with Rule 8D of Income- -tax, Act. The appellant states that he had not utilized the monies The appellant states that he had not utilized the monies The appellant states that he had not utilized the monies borrowed during the previous year for earning exempt income. borrowed during the previous year for earning exempt income. borrowed during the previous year for earning exempt income. Hence, no interest could be attributed towards the earning of Hence, no interest could be attributed towards the earning of Hence, no interest could be attributed towards the earning of exempt dividend income. The ground raised by the appellant is exempt dividend income. The ground raised by the appellant is exempt dividend income. The ground raised by the appellant is seen vis a vis the fact already noted in the assessment order. a vis the fact already noted in the assessment order. a vis the fact already noted in the assessment order. The borrowing over and above the capital and free reserves The borrowing over and above the capital and free reserves The borrowing over and above the capital and free reserves has been used for earning exempt income becomes apparent has been used for earning exempt income becomes apparent has been used for earning exempt income becomes apparent from the peculiar facts of this case. This year is the first year from the peculiar facts of this case. This year is the first year from the peculiar facts of this case. This year is the first year in which the appella in which the appellant has raised short term borrowing of Rs nt has raised short term borrowing of Rs 11 crores and incurred interest expenditure on these 11 crores and incurred interest expenditure on these 11 crores and incurred interest expenditure on these borrowing. The investments during the year have increased borrowing. The investments during the year have increased borrowing. The investments during the year have increased from Rs.1,48,88,94,216/ from Rs.1,48,88,94,216/- to Rs.1,67,49,50,606/. As per the to Rs.1,67,49,50,606/. As per the Cash Flow Statement filed by assessee as part Cash Flow Statement filed by assessee as part of the financial of the financial statements, the net cash flow from operating activities as well statements, the net cash flow from operating activities as well statements, the net cash flow from operating activities as well as net cash flow from investment activities is negative. The as net cash flow from investment activities is negative. The as net cash flow from investment activities is negative. The only Positive cash flow in from Financial activities, wherein the only Positive cash flow in from Financial activities, wherein the only Positive cash flow in from Financial activities, wherein the proceeds from short proceeds from short -term borrowing are the main source of n source of funding. Also, the assessee during the assessment proceeding funding. Also, the assessee during the assessment proceeding funding. Also, the assessee during the assessment proceeding or appellate proceedings has not brought any material on or appellate proceedings has not brought any material on or appellate proceedings has not brought any material on record to prove that these borrowed/interest bearing funds record to prove that these borrowed/interest bearing funds record to prove that these borrowed/interest bearing funds were not used for the purpose of making investments. The were not used for the purpose of making investments. The were not used for the purpose of making investments. The appellant has relied on case has relied on case laws where net interest has interest has been considered for the purpose of disallowance. The facts of been considered for the purpose of disallowance. The facts of been considered for the purpose of disallowance. The facts of each case is different and the ratio cannot be universally each case is different and the ratio cannot be universally each case is different and the ratio cannot be universally applied. The appellant has also relied on PCIT vs Nirma credit applied. The appellant has also relied on PCIT vs Nirma credit applied. The appellant has also relied on PCIT vs Nirma credit and capital (p)ltd .The f and capital (p)ltd .The fact of this case vis a vis appellant act of this case vis a vis appellant needs to be seen: needs to be seen:
Dividend income Interest Interest income Appellant 25.90 crores 81.19 lacs 81.19 lacs Nirma Credit and capital Nirma Credit and capital 25.26 6.83 crores 6.83 crores (p) Ltd.
The above income analysis clearly reveals that major portion The above income analysis clearly reveals that major portion The above income analysis clearly reveals that major portion of interest expense in case of PCIT vs Nirma credit and capital expense in case of PCIT vs Nirma credit and capital expense in case of PCIT vs Nirma credit and capital (p)ltd was for earning interest income from ICD and other (p)ltd was for earning interest income from ICD and other (p)ltd was for earning interest income from ICD and other investments which emphasizes even more on the fact that investments which emphasizes even more on the fact that investments which emphasizes even more on the fact that given the appellant's case rule 8D resorted by the AO is given the appellant's case rule 8D resorted by the AO is given the appellant's case rule 8D resorted by the AO is correct. Therefore, it is clear t Therefore, it is clear that the assessee incurred interest hat the assessee incurred interest expenditure, but failed to establish that the funds used for expenditure, but failed to establish that the funds used for expenditure, but failed to establish that the funds used for exempt investments were entirely interest exempt investments were entirely interest-free. The claim that free. The claim that no further disallowance was warranted is not acceptable. This no further disallowance was warranted is not acceptable. This no further disallowance was warranted is not acceptable. This ground of appeal is, therefore, rej ground of appeal is, therefore, rejected.” 9.2 The relevant observations of the learned CIT(A), extracted The relevant observations of the learned CIT(A), extracted The relevant observations of the learned CIT(A), extracted above, make it abundantly clear that the assessee failed to above, make it abundantly clear that the assessee failed to above, make it abundantly clear that the assessee failed to substantiate its assertion that borrowed funds were not deployed substantiate its assertion that borrowed funds were not deployed substantiate its assertion that borrowed funds were not deployed towards investments yielding exempt income. The CIT(A) also rightly towards investments yielding exempt income. The CIT(A) also rightly towards investments yielding exempt income. The CIT(A) also rightly distinguished the case law relied upon by the assessee, including inguished the case law relied upon by the assessee, including inguished the case law relied upon by the assessee, including PCIT v. Nirma Credit and Capital (P) Ltd., pointing out that the , pointing out that the PCIT v. Nirma Credit and Capital (P) Ltd. factual matrix of that case was materially different, particularly in factual matrix of that case was materially different, particularly in factual matrix of that case was materially different, particularly in the context of interest the context of interest-earning activities. The learned CIT earning activities. The learned CIT(A) thus concluded that the assessee had incurred interest expenditure and concluded that the assessee had incurred interest expenditure and concluded that the assessee had incurred interest expenditure and had not demonstrated that exempt investments were financed solely had not demonstrated that exempt investments were financed solely had not demonstrated that exempt investments were financed solely out of interest-free funds. The claim for exclusion of such interest free funds. The claim for exclusion of such interest free funds. The claim for exclusion of such interest was, therefore, rejected. was, therefore, rejected.
9.3 We have independently examined the matter. During the We have independently examined the matter. During the We have independently examined the matter. During the course of hearing, attention of the learned counsel was invited to course of hearing, attention of the learned counsel was invited to course of hearing, attention of the learned counsel was invited to page 32 of the Paper Book, being the cash flow statement for the page 32 of the Paper Book, being the cash flow statement for the page 32 of the Paper Book, being the cash flow statement for the year. As rightly observed by the CIT(A), the statement reflects an year. As rightly observed by the CIT(A), the statement reflects an year. As rightly observed by the CIT(A), the statement reflects an absence of operational or investment ence of operational or investment-related cash inflows, and related cash inflows, and conclusively shows that the only source of fresh funds was the conclusively shows that the only source of fresh funds was the conclusively shows that the only source of fresh funds was the short-term borrowing of term borrowing of ₹11 crores. When specifically queried about 11 crores. When specifically queried about the sources of funds utilised for the increase in investments during the sources of funds utilised for the increase in investments dur the sources of funds utilised for the increase in investments dur the year, the learned counsel was unable to offer any cogent the year, the learned counsel was unable to offer any cogent the year, the learned counsel was unable to offer any cogent explanation or to place any material on record to contradict the explanation or to place any material on record to contradict the explanation or to place any material on record to contradict the findings of the CIT(A). findings of the CIT(A). In these circumstances, and having regard to In these circumstances, and having regard to the clear factual findings recorded by the CIT(A), we find no the clear factual findings recorded by the CIT(A), we fin the clear factual findings recorded by the CIT(A), we fin infirmity in the conclusion that the interest component was liable to infirmity in the conclusion that the interest component was liable to infirmity in the conclusion that the interest component was liable to be considered under Rule 8D(2)(ii). The statutory presumption be considered under Rule 8D(2)(ii). The statutory presumption be considered under Rule 8D(2)(ii). The statutory presumption applicable in such cases remains unrebutted, and the assessee has applicable in such cases remains unrebutted, and the assessee has applicable in such cases remains unrebutted, and the assessee has not discharged the onus cast upon it to establish that interest- not discharged the onus cast upon it to establish tha not discharged the onus cast upon it to establish tha bearing funds were not utilised for making exempt investments. bearing funds were not utilised for making exempt investments. bearing funds were not utilised for making exempt investments. Accordingly, Ground Nos. 4 and 5 raised by the assessee are Accordingly, Ground Nos. 4 and 5 raised by the assessee are Accordingly, Ground Nos. 4 and 5 raised by the assessee are devoid of merit and are hereby dismissed. devoid of merit and are hereby dismissed.
Ground No. 6 pertains to the assessee’s contention that no pertains to the assessee’s contention that no disallowance of interest ought to be made, as the interest income nterest ought to be made, as the interest income nterest ought to be made, as the interest income earned during the year exceeded the interest expenditure incurred. earned during the year exceeded the interest expenditure incurred. earned during the year exceeded the interest expenditure incurred. The plea, in essence, is that only the net interest should be The plea, in essence, is that only the net interest should be The plea, in essence, is that only the net interest should be considered for the purposes of section 14A of the Act. considered for the purposes of section 14A of the Act. considered for the purposes of section 14A of the Act.
10.1 We are unable to a We are unable to accept this contention. The disallowance ccept this contention. The disallowance under section 14A read with Rule 8D is attracted by reason of the under section 14A read with Rule 8D is attracted by reason of the under section 14A read with Rule 8D is attracted by reason of the use of interest-bearing funds for making investments bearing funds for making investments which yield bearing funds for making investments exempt income. The statutory scheme does not permit the netting of exempt income. The statutory scheme does not permit the netting of exempt income. The statutory scheme does not permit the netting of ainst interest expenditure for determining the interest income against interest expenditure for determining the ainst interest expenditure for determining the quantum of disallowance. Interest income constitutes a separate quantum of disallowance. Interest income constitutes a separate quantum of disallowance. Interest income constitutes a separate and distinct taxable receipt; conversely, interest expenditure and distinct taxable receipt; conversely, interest expenditure and distinct taxable receipt; conversely, interest expenditure incurred for purposes of earning exempt income falls within the incurred for purposes of earning exempt income falls within the incurred for purposes of earning exempt income falls within the mischief of section 14A. The two are not interdependent so as to n 14A. The two are not interdependent so as to n 14A. The two are not interdependent so as to warrant an adjustment or set warrant an adjustment or set-off in the manner canvassed by the off in the manner canvassed by the assessee.
10.2 In these circumstances, the argument advanced by the In these circumstances, the argument advanced by the In these circumstances, the argument advanced by the assessee is contrary to the settled legal position and must assessee is contrary to the settled legal position and must assessee is contrary to the settled legal position and must necessarily fail. Accordingly, Ground No. 6 of the appeal is Accordingly, Ground No. 6 of the appeal is Accordingly, Ground No. 6 of the appeal is dismissed.
pertains to the submission of the learned counsel for the pertains to the submission of the learned counsel for the pertains to the submission of the learned counsel for the assessee that, while computing the disallowance under Rule 8D, assessee that, while computing the disallowance under Rule 8D, assessee that, while computing the disallowance under Rule 8D, only the average value of those investments which have actually only the average value of those investments which have actually only the average value of those investments which have actually yielded dividend income ought to be considered. Reliance has been dend income ought to be considered. Reliance has been dend income ought to be considered. Reliance has been placed on the decision of the Special Bench of the Tribunal in placed on the decision of the Special Bench of the Tribunal in placed on the decision of the Special Bench of the Tribunal in Vireet Investment Pvt. Ltd. Vireet Investment Pvt. Ltd., ITA No. 502/Del/2012. ITA No. 502/Del/2012.
11.1 We have carefully considered the rival submissions. It is We have carefully considered the rival submissions. It is We have carefully considered the rival submissions. It is evident that the Assessin evident that the Assessing Officer, while applying Rule 8D, did not g Officer, while applying Rule 8D, did not take into account the binding ratio laid down by the Co-ordinate take into account the binding ratio laid down by the Co take into account the binding ratio laid down by the Co Special Bench in Vireet Investment Pvt. Ltd. Vireet Investment Pvt. Ltd. (supra), which squarely (supra), which squarely governs the method of computing the disallowance under Rule governs the method of computing the disallowance under Rule governs the method of computing the disallowance under Rule 8D(2)(ii) and 8D(2)(iii). 8D(2)(ii) and 8D(2)(iii).
In the interests of justice, and to ensure a computation in 11.2 In the interests of justice, and to ensure a computation in In the interests of justice, and to ensure a computation in accordance with law as expounded by the Special Bench, we deem accordance with law as expounded by the Special Bench, we deem accordance with law as expounded by the Special Bench, we deem restore this issue to the file of the learned it appropriate to restore this issue to the file of the learned restore this issue to the file of the learned Assessing Officer. The Assessing Officer shall recompute the Assessing Officer. The Assessing Officer shall recompute the Assessing Officer. The Assessing Officer shall recompute the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) afresh, strictly disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) afresh, strictly disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) afresh, strictly in conformity with the principles laid down in in conformity with the principles laid down in Vireet Investment Pvt. Vireet Investment Pvt. Ltd. (supra), after affording due opportunity to the assessee. upra), after affording due opportunity to the assessee. upra), after affording due opportunity to the assessee. The ground is allowed for statistical purposes. ground is allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for In the result, the appeal of the assessee is partly allowed for In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court o ounced in the open Court on 17/11/2025. /11/2025.