TaxTMI 
TaxTMI 
2013 (10) TMI 929
X X X X Extracts X X X X
X X X X Extracts X X X X
.... connection with the said issue of shares which was claimed as revenue expenditure. The AO asked the assessee to explain as to why the expenses should not be disallowed as capital in nature. The assessee explained that the funds raised through public issue had been partly kept in fixed deposit on which interest income was earned which went to reduce the finance cost and, therefore, the expenditure should be allowed as revenue expenditure. Alternatively it was also submitted that the claim may be allowed u/s 35D of the IT Act. The AO did not accept the contentions raised. It was observed by him that expenditure incurred for expansion of capital base has to be treated as the capital expenditure in view of the judgment of Hon'ble Supreme Court in case of Punjab State Industrial Development Corporation Ltd Vs. CIT ( 225 ITR 792). AO further observed that deduction u/s 35D could be allowed only in respect of expenditure incurred in connection with expansion of the industrial undertaking or in connection with setting up of a new industrial unit. Since the funds were not raised in connection with extension or for setting up of a new industrial undertaking, the AO disallowed the claim u/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee. Facts in this year are identical to which both the parties agreed. We, therefore, set aside the order of CIT(A) and restore the matter to the file of AO for passing afresh order after necessary examination in the light of decision of Tribunal in assessment year 2006- 07(Supra). 2.2 The second dispute is regarding disallowance of expenses u/s 14A of the IT Act. The AO during the assessment proceedings noted that the assessee had received dividend income of Rs. 11,55,228/- from shares and the units of mutual funds which was exempt from income tax. The assessee had however not disallowed any expenses relating to such income. AO, therefore, asked the assessee to explain as to why the expenses should not be allowed. The assessee submitted that all the investments had been made from own funds and not from the borrowed funds. The assessee had, therefore, not incurred any interest expenditure. The assessee had also not incurred any other direct expenses. As regards the indirect expenses it was submitted that the same could be maximum upto Rs. 5,000/-. AO, however, did not accept the arguments advanced. It was observed by him that disallowance of expenses has to be made in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to subsidiary company Rs. 5,08,23,815/- (iii). Investment in subsidiary company Rs. 5,00,000/- (iv). Other Deposits (includes deposit With parties in which one of the Director is a Member & Director Rs. 1,00,00,000/- (v). Inter corporate deposits Rs. 4,04,09,679/- 3.2 The AO, therefore, asked the assessee to explain as to why the proportionate disallowance of expenditure relating to the above investment should not be made. The assessee submitted that investments of Rs. 27.41 crore in associate company had been made from own funds and not from borrowed funds and, therefore, no disallowance could be made in relation thereto. Similarly advances of Rs. 5.08 crore to the subsidiary had been made from proceeds of QIP issue and no interest expenditure was involved. In regard to other investment/deposits, it was submitted that the same had been made on commercial expediency. The AO accepted the claim in relation to investment/advances of Rs. 27.41 crore and 5.08 crore. In relation to other investment totaling Rs. 5.09 crore, the AO observed that the assessee had failed to explain as to how these investments were related to the business of the assessee. AO, therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e had received dividend income which was not taxable. But the assessee had not disallowed any expenses relating to the exempt income. AO, therefore, asked the assessee to explain as to why disallowance of expenses should not be made. The assessee submitted that the investments had been made from own funds and not from the borrowed funds and, therefore, no interest expenditure was involved. It was also submitted that no other direct expenses had been incurred and indirect expenses were nominal not exceeding Rs. 5,000/-. AO however observed that there was no discretion given to the AO in matter of disallowance of expenses u/s 14A which has to be made as per Rule 8D. He, therefore, computed the disallowance as per Rule 8D at Rs. 46,33,215/- consisting of interest expenditure of Rs. 42,45,521/- and other expenses of Rs. 3,87,693/-. 4.1.2 In appeal, CIT(A) observed that the assessee had disputed only the quantification of expenses as the AO had adopted the figure of gross interest without reducing the interest capitalized and had also taken average value of interest incorrectly. CIT(A), therefore, directed the AO to verify the figures while confirming the disallowance made as per Rul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut in appeal CIT(A) had allowed 1/5th of such expenses u/s 35D of the IT Act. But in further appeal the Tribunal had restored the issue to the file of AO for fresh decision. In assessment year 2007-08 the AO had again disallowed the expenses which was confirmed by CIT(A). Further appeal by the assessee on this issue has already been considered by us and vide para 2.4 of the order, we have restored this issue to the file of AO for fresh decision. Therefore, the claim of the assessee u/s 35D in this year will depend upon the decision taken by AO and the appellate authorities in assessment year 2006-07 and 2007-08 regarding allowability of claim u/s 35D. We, therefore, set aside the order of CIT(A) on this issue and restore the matter to the file of AO to be dealt with afresh in line with the decision taken on the issue in assessment year 2006-07 and 2007-08. 5. The appeal of the revenue in assessment year 2008-09 in ITA No. 533/Mum/2012. The only dispute raised by the revenue in this appeal is regarding disallowance of interest u/s 36(1)(iii) of the IT Act., which has been deleted by CIT(A) 5.1 The AO noted that in the balance sheet the assessee had shown loan liability of Rs. ....