TaxTMI 
TaxTMI 
2015 (10) TMI 2423
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.... company has made entire investments in Equity shares of the said company out of Internal Accrual of the company and no specific borrowings have been made for the investments by the company. 3. The company is an Export Oriented Unit and is availing working capital limits in form Packing Credit and FOUBP/FOUBNLC limit from Punjab National Bank, Birhana Road, Kanpur. The loan has been granted to the company for specific purpose of manufacturing garments & exporting the same to buyers. The bank releases the Packing Credit limit on the basis of Export Orders received by the company for purchase of raw materials for Manufacturing of the goods. When the goods are manufactured and shipped to the foreign buyers, the bank releases the funds under FOUBP/FOUBNLC Limit on the basic of Bill of Lading produced before it. Thus the funds released and interest charged by the bank on both the limits are for business purpose only and there is no possibility for diversion of funds for Investments under terms of sanction of the Bank. 4. The Both working capital limits are sanctioned for short term period only and are renewed year depending upon built up of current Assets comprising of inventory, ex....
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....ree income, the corresponding expenditure could not be worked out for disallowance.( Copy of Order enclosed} In the Case of CIT Vs. HOLCIM INDIA P. LTD. (Delhi High Court) September, 2014, It was held that in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance.( Copy of Order enclosed ) In the case of ACIT Vs. Mr. M. Baskaran, (ITAT CHENNAI) June2014, the court observed that: "No doubt in the decision of the Special Bench of Delhi Tribunal in the case of Cheminvest Ltd. Vs. ITO (supra),the Special Bench held that disallowance under section 14Acan be made even in the year in which no exempt income has been earned or received by the assessee. This decision of Special Bench of the Tribunal has been impliedly overruled by the decisions of High Courts in the In the case of M/s. Shivam Motors P.Ltd." .( Copy of Order enclosed ) In the case of CIT Vs. M/s Lakhani Marketing lnc (HighCourt P&H) April 2014 , the court observed that " The contention raised on behalf of the revenue is that even if the assessee had made investment in shares out of its own funds, the assessee had taken loans on which interest was paid and all the mon....
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....t disallowance u/s 14A is not permissible where there is no nexus between expenditure incurred and Income generated. In the case of CIT Vs. Winsome Textiles Limited, 204 ITR 319, the court decided that when shares were acquired by way of own funds and no interest was incurred, then there cannot be any disallowance u/s 14A of the Act. Wallfort Shares & Stock Brokers Limited Vs. IT0310 ITR 421 (Bombay) The Hon'ble High Court held as under: 'What Section 14A contemplates is the expenditure actually incurred for earning Tax Free Income and not assumed of deemed expenditure. In these circumstances, the decision of Tribunal in rejecting the alternate argument of Revenue cannot be The above view has been upheld, on Appeal, by the Hon'ble Supreme Court vide Judgment dated 06.07.2010 (CIT Vs. Wallfort) by holding as under: "For attracting Section 14A, there has to be proximate cause for disallowance, which is its relationship with the tax exempt income. Pay-back of return of investment is not such proximate cause, hence Section 14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, Section 14A cannot be invoked. " ....
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....submitted that as per audited balance sheet for present year and preceding four years available on page 56 of the paper book, it can be seen that investment was first made in FY 2006-07 of Rs. 55 lakh which have gone up Rs. 107 lakh in FY 2007-08 and the same is continuing till the end of FY 2009-10 relevant for the present assessment year. He also submitted that own fund of the assessee company was of Rs. 195.33 lakh as on 31.03.2007 and Rs. 249.80 lakh as on 31.03.2008 and the same was much in excess of investment. He submitted that under these facts, no disallowance u/s 14A is called for and in support of his contention, he placed reliance on a judgment of the Hon'ble Apex Court in the case of Rajasthan State Warehousing Corporation Vs. CIT reported in 242 ITR 450. He also submitted that there is violation of Section 14A (2) of the Act because no satisfaction has been recorded by the AO. 5. We have considered the rival submissions. We find that this is admitted position of fact that the amount was invested in shares to the extent of Rs. 170 lakh at the end of FY 2007-08 and the same is continuing in the present year also at the same figure. This is also admitted fact that this ....
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....stment in shares, actual receipt of dividend in the present year is not necessary. This judgment of the Hon'ble Apex Court was not brought to the notice of Hon'ble Allahabad High Court in the case of Shivam Motors (Supra) and the same was therefore not considered and hence, this issue is covered against the assessee by the judgment of the Hon'ble Apex Court rendered in the case of Rajendra Prasad Moody (Supra). 6. Regarding this contention that no satisfaction was recorded by the AO as required u/s 14A(2), we find that on page 6 of the assessment order, it is noted by the AO that in AY 2009-10, Ld. CIT(A) has not only confirmed the addition u/s 14A in that year but also directed to compute the disallowance of interest also u/s 14A read with Rule 8D of the Rule. During the course of appellate proceeding, Ld. CIT(A) has found that almost all of the investment of Rs. 170 lakh was made on the strength of credit receipt in assessee's Bank account from packing credit/post shipment credit. Hence, it is seen that not only satisfaction was recorded by the AO but he has given a basis of that satisfaction also that the entire investment of Rs. 170 lakh was made on the strength of credit rece....