TaxTMI 
TaxTMI 
2010 (6) TMI 612
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.... Department and advocate Sri Harisankar V. Menon appearing for the respondent-assessee. 2. The assessee was running a business as proprietrix engaged in trading of goods. During the previous year relevant for the assessment year 2001-02 (wrongly written in the original order, annexure C, as 2002-03, which was corrected by the Tribunal through annexure D order) the assessee paid an interest of Rs. 17,44,310 towards interest at 24 per cent. per annum on funds borrowed for purchase of shares in a company by name Homefit Leasing Ltd. The assessee's case was that the company in which the assessee made investments through acquisition of shares was engaged in leasing of household articles and the assessee as proprietrix of the business s....
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....ion of shares in the leasing company. First appeal was dismissed confirming the assessment, against which the assessee preferred a second appeal before the Tribunal. The Tribunal by relying on decision of the Supreme Court in S. A. Builders Ltd. v. CIT (Appeals) reported in [2007] 288 ITR 1 (SC) and the decision of the Calcutta High Court in CIT v. Rajeeva Lochan Kanoria reported in [1994] 208 ITR 616 (Cal), substantially allowed the claim, but made a disallowance of Rs. 2 lakhs being the interest stated to be attributable to the dividend income of Rs. 3 lakhs earned by the assessee from the leasing company during the previous year. Against this order, the Revenue has preferred this appeal. 3. Senior counsel appearing for the Reve....
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....pplicable is the argument of the assessee. 4. On facts we find that the interest paid by the assessee during the previous year for the funds borrowed for acquisition of shares in the company was at the rate of 24 per cent. per annum and the total interest paid in the accounting year alone is as much as Rs. 17,44,310. It is on record that the assessee had received only a dividend income of Rs. 3 lakhs and no other benefit is derived from the company for the business carried on by it. The disallowance prohibited under section 14A is expenditure incurred for earning any income which does not constitute total income of the assessee. In other words, any expenditure incurred for earning any income which is not taxable under the Act, is ....
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....rightly disallowed the claim. As already pointed out, the Calcutta High Court decision which pertains to the period prior to introduction of section 14A, has no application. The decision of the Supreme Court also does not apply because in this case apart from investment in shares of the company, there is nothing to indicate that the assessee's business was fully linked with the business of the leasing company or that the assessee's business is solely dependent on the business of the leasing company. In fact, the whole transaction was a total fiasco inasmuch as, as against Rs. 17,44,310 paid towards interest on borrowed funds serviced at the rate of interest of 24 per cent. per annum, the dividend income received by the assessee during the p....