AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (1) TMI 41
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....xpenses could not be disallowed. It was also submitted that there were no expenses incurred for earning of any income which was exempt. The CIT(A) however, did not accept the contentions raised. It was held by him that expenses had to be disallowed as per Rule 8D following the decision of the Mumbai Special Bench of the Tribunal in case of Daga Capital Management Ltd. (26 SOT 603). He, therefore, confirmed the disallowance aggrieved by which the assessee is in appeal before the Tribunal. 3. Before us, the ld. AR for the assessee reiterated the submissions made before lower authorities that the assessee had not received any dividend income which was exempt from tax and, therefore, no expenses could be disallowed under section 14A. He placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Ascent Tradecom Private Limited vs. DCIT in ITA No.6194/M/2006 in support of the proposition. It was pointed out that the decision of the Tribunal was based on the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Delite Enterprises in Income tax Appeal No.110/2009 dated 26.2.2009. The ld. AR also argued that even if disallowance had to be made, Rule 8D could n....
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....s affirmed on the issue brought before Hon'ble Court, it is the decision of the Hon'ble Court which becomes operative. The Tribunal accordingly held following the judgment of Hon'ble High Court of Bombay in case of CIT vs. Delite Enterprises (supra) that disallowance of expenses could not be made under section 14A. 4.1 We have carefully considered the various aspects of thematter including the decision of the Tribunal in the case of Ascent Tradecom Private Limited (supra), and the judgment of Hon'ble High Court of Gujarat in the case of Nirma Industries Ltd. (supra),. In case of Nirma Industries Ltd.(supra), the Hon'ble Court was concerned with effect of dismissal of Tax Appeal by the Hon'ble Court holding that no substantial question of law had arisen. The Hon'ble Court held that once appeal against decision of the Tribunal is dismissed by the High Court holding that there is no substantial question of law involved, there is merger of order of the Tribunal with that of the Hon'ble Court and it becomes the decision of the Hon'ble Court on the subject. Thus, the issue before the High Court was regarding merger of the order. The issue was not whether such an order of the High Court ....
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....xpenses has to be made on a reasonable basis after allowing opportunity of hearing to the assessee. We, therefore, set aside the order of CIT(A) and restore the issue to the file of AO for passing a fresh order after necessary examination in the light of judgment of Hon'ble High Court of Bombay (supra) and after allowing opportunity of hearing to the assessee. 5. The second dispute is regarding disallowance of interest expenditure of Rs.59,51,911/-. The AO noted that the assessee had claimed interest expenditure of Rs.59,51,911/-. The AO, therefore asked the assessee to explain the nexus between interest expenditure and income earned by the assessee. The assessee explained that it was engaged in syndication activities and was also enjoying commission from insurance business. Since the assessee had small capital base, it had obtained loan from M/s. All Grow Finance & Investment Pvt. Ltd. in the preceding years. The opening balance of loan was Rs.3.70 crores and during the year had received fresh loan of Rs.62.00 lacs and also had repaid loan to the tune of Rs.20.00 lacs. The net loan during the year was thus Rs.42 lakhs. It was also submitted that the loan had been used for the pur....
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....sed for operating expenses of the business and some fresh interest free advances were also given. Major portion of the loan was carried forward from the earlier year in which it had been utilized for the business and interest had been allowed in assessment year 2006-07. In assessment year 1996-97, interest of Rs.9.86 lacs had been disallowed on the ground that no interest had been charged on advances. Thus, the disallowance if any, has to be restricted to the interest free advances of Rs.1.13 crores @ 14.5% which came to Rs.13,83,880/-. CIT(A) after considering submissions of the assessee observed that similar disallowance had been made by AO in assessment year 2006-07. The disallowance had been restricted by AO to 14.5% of the total interest. The assessee had not disputed the disallowance further and, therefore, assessee accepted the finding of AO that the interest was not business expenditure. In the current year the AO had disallowed interest as assessee could not prove business expediency. CIT(A) agreed with the, AO that there was nothing to prove that any part of the loan had been used for the purpose of business. He, therefore, confirmed the, disallowance aggrieved by which t....