AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 419
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.... the Assessing officer be restored." The assessee company has raised following grounds in the cross objection filed: "1. The Ld. CIT(A)-7,Mumbai on the facts and in circumstances rightly held that the AO was not justified in making disallowance u/s 14A for AY 2009-10 to the extent of Rs. 35,21,564. 2. That the Ld. CIT(A)-7,Mumbai in the facts and circumstances of the case erred in sustaining disallowances u/s 14A to the extent of Rs. 7,21,989 holding that the respondent company had incurred administrative and other expenses in earning exempt income and as per rule 8D(2)(iii) the same is disallowable to the extent of 0.5% of average investment. The said disallowance is not justified and is liable to be deleted." 3. The Brief facts of the case are that assessee company is engaged in the business of manufacturing and dealing in flexible packaging material. 4. During the assessment proceedings u/s 143(3) read with section 143(2) of the Income Tax Act,1961 , the assessing officer noticed that the assessee company has received dividend of Rs. 48,925/- which was claimed as exempt income by the assessee company . The assessee company was asked to explain why the expenditure incu....
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....any to earn exempt income for the relevant assessment year particularly when the assessee company has denied having spent any expenditure for earning any exempt income. The assessee company submitted that it has total investments of Rs. 20.41 crores as at the end of the assessment year, and own funds consisting of equity capital and reserve and surplus is Rs. 41.64 crores as at the end of assessment year. The assesee company submitted that it has made investment of Rs. 11.93 crores during the assessment year (including investment in 100% subsidiary company Umax Packaging Limited of Rs. 1123.42 lacs made during the assessment year) and it has used the proceeds of fresh share capital raised during the assessment year to the tune of Rs. 9.86 crores and own reserves and surplus to the tune of Rs. 2.07 crores were utilised for making the afore-stated investment. The assessee company also submitted that it has borrowed money by way of following amounts outstanding as at year end which are utilized for the specific purpose for which the said loans were raised such as acquisition of fixed assets,book debts,stocks and car. (a) Term Loans from Banks -Rs 2.01 crores- utilised for acquiring ....
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....r. 6. Aggrieved by the order of CIT(A), the Revenue is in appeal before us. 7. Ld. DR relied upon the order of the assessing officer and contended that interest expenses of Rs. 35,21,526/- are to be disallowed as the assessee company has made huge investment of Rs. 20.41 crores in shares and mutual funds, the income of whom will be exempt from tax and hence on the same analogy expenses are to be disallowed as per mandate of Section 14A of the Act read with rule 8D(2)(ii) of the Income Tax Rules,1962. 8. The assessee company on the other hand reiterated its submissions made before the authorities below and relied upon the order of the CIT(A). The assessee company also relied upon the orders of Delhi Bench of Tribunal in the case of Interglobe Enterprises Ltd. v. DCIT (2014) 40 CCH 022 and contended that the assessee company had utilized interest free funds to make investments . The assessee company submitted that the investment of Rs. 19.37 crores out of total investment of Rs. 20.41 crores is in 100% subsidiary company Umax Packaging Limited which is a strategic investment. The assessee submitted that the assessing officer has failed to bring any material on record to establish ....
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....erved that assessee company has duly demonstrated that the interest bearing funds to the tune of Rs. 12.20 crores on which the assessee company has paid interest have been raised from the banks towards the acquisition of fixed assets, car loan, book debts and stocks .The assessee company has also raised during the financial year , fresh equity capital of Rs. 9.86 crores and free reserve of Rs. 2.07 crores were utilised to make fresh investments of Rs. 11.93 crores during the assessment year. Thus , we hold that assessee has sufficient own funds to make investment and the assessee has also proved by cogent evidences that no interest bearing funds are utilized for making investments as the assesee company has demonstrated that the interest bearing funds are bank loans raised by the assessee company for specific purposes and also utilised for the said purposes from which diversion of fund is not permitted and hence the disallowance of the interest expenditure of Rs. 35,21,564/- under Ruled 8D2(ii) by the revenue is hereby deleted and order of the CIT(A) is upheld. Hence , the appeal of the Revenue is dismissed. 9. We will now dispose off the cross objection filed by the assessee comp....
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.... doubt , the returns can also come by way of divestments of these investments but normally strategic investments are made with long term horizon where objective is to set up business and growth of these business over a long period of time. In these type of strategic investments, the investor has to normally devote significant time to plan, execute and monitor these investments regularly and periodically to ensure that these strategic investments are turned viable and profitable. These Investment decisions are very complex in nature. They require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time. They require huge investment in shares and consequential blocking of funds. Besides, investment decisions are generally taken in the meetings of the Board of Directors / Shareholders for which administrative and management expenses are incurred and in some businesses regulatory approvals are required before setting up the same. There will be regular monitoring of these investments which also may require participation in the meetings of committees, Board of Director and Shareho....
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....he purposes of computing the total income under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in sections 15 to 59 but related to the income not forming part of total income could not be allowed against other income i....
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....his Tribunal has held that, the dividend income being exempt under section 10(33), the interest on capital borrowed for acquisition of relevant shares yielding such dividend cannot be allowed deduction by operation of section 14A. In Dy. CIT v. SG Investments &Industries Ltd. (2004) 89 ITD 44 (Cal.), the Calcutta Bench of this Tribunal has laid down two propositions: one, in view of section 14A inserted in the Income Tax Act with retrospective effect from 1-4-1962, pro rata expenses on account of interest relatable to investment in shares for earning exempt income from dividend are to be disallowed against taxable income and only the net dividend income is to be allowed exemption after deducting the expenses; and two, the expression "expenditure incurred by the assessee in relation to income which does not form part of the total income" in section 14A has to be given a wider meaning and would include both direct and indirect relationship between expenditure and exempt income. Following the decision of the Hon'ble Supreme Court in CIT v. United General Trust Ltd. (1993) 200 ITR 488 (SC), the Calcutta Bench of the Tribunal has also held that the interest paid by the assessee bein....
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....rust (P) Ltd. (supra), wherein the question was as under: "Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in applying the decision of the Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. (1973) 90 ITR 348 (Bom) to the assessment year in question without considering the effect of the amendment operative from Ist April, 1968, and in thus holding that the assessee would be entitled to the deduction under section 80M on the gross dividend before deduction of the proportionate management expenses ?" Thus, when the decision of the Honble Bombay High Court has been reversed, the proportionate management expenses are required to be deducted while computing the dividend income. In the decision of the Hon'ble Calcutta High Court, relied upon by the learned counsel for the assessee, Mr. Dastur, in the case of CIT v. United Collieries Ltd. (supra), it has been held that if the facts of a particular case so warrant, the allocation can be made towards expenses. In view of the aforementioned discussion and keeping in view the submissions of the learned Departmental Representative, we restore this matter to the assess....