TaxTMI 
TaxTMI 
2015 (11) TMI 1011
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....visions of section 14A are clearly applicable in the case in respect of investments made by the assessee. 4. That the CIT (A) has erred in law and facts in allowing the relief of Rs. 4,38,322/- towards Bad Debts claims written off u/s. 35D without appreciating that the facts did not allow for such write off and the Department is in appeal before the Hon'ble ITAT for A.Y, 2009-10. 5. That the CIT (A) has erred in law and facts in allowing the relief of Rs. 4,27,342/-towards Bonus without appreciating the facts that the AO has not made any addition on this issue and assessee itself added back this amount in the computation of income during the assessment proceedings, 6. That the order of the CIT(A), Kanpur being erroneous, unjust and bad in law be vacated and the order of the AO be restored. 2. The assessee has also filed cross objection against the disallowance of expenditure under rule 8D(2)(ii) of the Rules relating to investment in shares in domestic companies. 3. Since the appeal of the Revenue and cross objection of the assessee were heard together, these are being disposed of through this consolidated order. 4. Apropos grounds No.1 & 2, ....
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....KU (Armours) (P) Ltd. are entitled for exemption under s. 10B of the IT Act." 7. Since the controversy with regard to the eligibility of deduction under section 10B of the Act has been set at rest by the Hon'ble High court in the assessee's own case in assessment years 2008-09 and 2009-10, we decide this issue following the aforesaid judgment in favour of the assessee. Accordingly, the order of the ld. CIT(A) on this issue is confirmed. 8. Apropos ground No.3, it is noticed that the Assessing Officer has made disallowance of Rs. 55,35,947/- on account of interest incurred on investment in shares of foreign companies. 9. The assessee preferred an appeal before the ld. CIT(A) with the submission that he had not made any fresh investment towards earning of exempt income except own shareholdings. Besides, it was also contended that no expense of any kind was incurred and investment was made out of own surplus fund available in the form of share capital reserve and surplus. The ld. CIT(A), following his earlier order for assessment year 2009-10, in which identical issue was decided in favour of the assessee, has deleted the addition. 10. Aggrieved, the Revenue is in ....
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.... "Ground No.1(b) - disallowance of Rs. 1937855/- This disallowance has been made under section 14A of the Act on account of investment of Rs. 49275705.00 in shares. By taking average of investment in shares at the beginning of year and close of year a sum of Rs. 123327.00 (0.5% of Rs. 24665352.00 has been disallowance under section 14A as per ruled 8D. Further the Assessing Officer has made a disallowance of Rs. 1814528.00 being interest an average investment as per rule 8D(2)(II) of the Act. The total disallowance therefore has being worked out at Rs. 1937855.00 (123327.00 + 1814528.00). The relevant para 5.6 of the assessment order is reproduced as under: "5.6 Further, it is observed that the assessee has made payment of interest of Rs. 43159795/- on the various loans and advances taken by it. Hence, the expenditure by way of interest during the previous year which is not directly expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt will have to be computed as per Rule 8D(2)(ii) i.e. A X B/C where "A" stands for amount of expenditure by way of interest. "B" stands for the average of....
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....any. In this connection reference of the note given by the Auditor in their Audit report is very important which is reproduced as under:- "B - Notes on accounts - Para 2 During the financial year 2007-08 the company took over a German company named "AST Security Equipment GMBH Germany for a total consideration of Rs. 454.21 lakhs (Euro 25000) by acquisition of 100% share from Mr. Hans Gunter Stabenau & Mrs Ankle, both German National the only shareholders of AST Security Equipment GMBH Germany. The investment was funded by Euro term loan of Euro 12.00 lakhs from export Import Bank of Indian. The share so acquired has been pledged to Exim Bank towards the security of said loan. The company had duly observed exchange control regulation under FEMA & other applicable rules regulations concerning such acquisition. The Management is of the opinion that the acquisition of AST Security Equipment GMBH is strategic in nature and shall given due benefits to the company in the international market in the times to come." About the disallowance of interest on such investment it is submitted that the appellant company had sufficient funds by way of sha....
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....l) (UO) 73 "Assessee has explained that the share capital and reserves, that is its own funds were utilized for the purpose of investment in share for earning dividend income which has not been negated by lower authorities - There is no linkage or nexus between the funds borrowed by assessee and the impugned investments - Hence no interest expenditure can be disallowed by mechanically applying the provisions of r. 8D. In view of these facts it is requested that the disallowance made by Assessing Officer under section 14A may kindly be deleted." I have considered the facts of the case and the arguments of the learned counsel and various decisions cited by him. I find that the investment made towards exempted income has been as under:- Rs.55000/- In shares of NKU AEROBOT Pvt. Ltd. (Old Investment) Rs.3799970/- Investment of shares of Cancord Safety Solutions Pvt. Ltd. made in the year under consideration Rs.45420735/- Investment in share of AST Securities Equipment GMBH Germany in the year under consideration. Rs.49275705/ The disallowance of Rs. 123327/- has been made as per provisions of Rule 8D(2) ....
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....ore, the order of the ld. CIT(A) has attained the finality and in the instant assessment year, the ld. CIT(A) has simply followed his aforesaid order. Therefore, we are of the view that once the Revenue has accepted the contention of the assessee with regard to the availability of surplus funds for investment in domestic companies, no further disallowance can be made in succeeding years. We accordingly confirm the order of the ld. CIT(A) on this issue. 14. Apropos ground No.4, the Assessing Officer has made disallowance of Rs. 4,38,322/- under section 35D of the Act having noted from Shedule-20 relating to 'Administrative Selling & Miscellaneous Expenses' annexed to and forming part of profit and loss account and balance sheet that the assessee has claimed Rs. 4,38,322/- towards bad debts and claims written off covered under section 35D as against Rs. 9,65,072/- claimed in the immediately preceding year following his earlier order for assessment year 2009-10. 15. Before the ld. CIT(A), the assessee has challenged the disallowance and being convinced with the explanations of the assessee, the ld. CIT(A) has deleted the disallowance having followed the order of the ld. ....