HIMADRI CREDIT & FINANCE LTD,KOLKATA vs. DCIT, C.C.-2(1), KOLKATA

At the outset, Ld. Counsel for the assessee has submitted that as per provisions of section 14A of the Act, before applying Rule 8D of the I.T Rules, the AO was supposed to go through the calculations and the method adopted by the assessee in making the suo motu disallowance of Rs. 95,800/-. That the AO was required to record the satisfaction that the method adopted by the assessee was not correct, only then he could have invoked the provisions of section 14A of the Act read with Rule 8D of the I.T Rules to calculate the disallowance. It has been further pleaded by him that the Ld. AO while making the impugned disallowance also added the disallowance of interest expenditure incurred under Rule 8D(2)(ii) of the I.T Rules. That, in fact, the assessee did not incur any such interest expenditure for making any investments. That the assessee in fact has earned net positive interest income, therefore, it cannot be said that the assessee incurred any interest expenditure. It has been further submitted by the Ld. Counsel for the assessee that the investments in question were made by the assessee in the group company of the assessee. That taking into consideration the entire facts and circumstances in respect of investments made, the suo motu disallowance of Rs. 95,800/- by the assessee was, in fact, more than the expenditure incurred by the assessee in making the investments. It has been further submitted that the disallowance of expenditure under no circumstances, could exceed the total expenditure claimed by the assessee. Therefore, the reasonable disallowance of expenditure could have been made by the Ld. AO out of the tax exempt income earned by the assessee.

The Ld. DR, on the other hand, submitted that the Ld. CIT(A) has already given adequate relief to the assessee and has restricted the disallowance at Rs. 8,11,208/- as against the disallowance of Rs.18,52,755/- made by the Ld. AO.