ACIT, CIRCLE- 10(2), NEW DELHI vs. GYAN ENTERPRISES PVT. LTD., NEW DELHI

Briefly stated the facts of the case are that during the financial year under consideration the assessee company was trading in units of mutual funds and investment in shares and debentures. During the course of the scrutiny assessment proceedings the AO noticed that the assessee has earned dividend income of Rs.232092684/- which was claimed exempt. The AO further found that the assessee has suo-moto disallowed Rs.9554057/- u/s. 14A being expenses pertaining to the tax free dividend income.

The assessee was asked to showcause why the disallowance should not be made as per rule 8D of the IT Rules 1962. The assessee filed a detailed reply by stating that no direct expenses was incurred earning the dividend income and explained the basis of suo-moto disallowance of Rs.9554057/-. 5. The explanation of the assessee did not find any favour with the AO who proceeded to compute the disallowance as per Rule 8D. The total disallowance was computed at Rs.35969168/- and after reducing the amount already disallowed, the AO made the addition of Rs.26415111/-. 6. Assessee carried the matter before the CIT(A) and reiterated its contention that no direct expenses were incurred for earning the exempt income and the dividend has been mostly received from promoters company. 7. After considering the facts and the submissions the CIT(A) was convinced with the contention of the assessee and deleted the disallowance made by the AO.

Before us the DR strongly supported the findings of the AO and read the relevant observations from the assessment order.

Per contra the counsel reiterated what has been stated before the lower authorities.

We have carefully considered the orders of the authorities below. We find that the AO has not recorded any satisfaction and in-fact the computation of suo-moto disallowance of Rs.9554057/- has not been faulted with. In our considered view without pointing out any specific item of expenditure directly attributable to the earning of the exempt income and without pointing out any infirmity or error in the suo-moto disallowance made by the assessee, the AO should not have proceeded mechanically by applying the formula given in rule 8D. The investment in the quoted shares is to the tune of Rs.179.57 crores whereas the own funds of the assessee are to the tune of Rs.295 crores. Therefore, it can be safely concluded that the investment have been made by the assessee from the interest free funds available with it.

Considering the facts of the case in totality we do not find any error or infirmity in the findings of the CIT(A).

In result, the appeal filed by the revenue is accordingly dismissed.

Decision announced in the open court in the presence of both the representatives on 08.09.2021.