AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (8) TMI 1057
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....voked by the Assessing Officer in the assessment order which was passed on 12.12.2008." 3. "On the facts and in the circumstances of the case as well as in law, the learned CIT(A) ought to have sustained the disallowance of Rs. 9909825j- computed by the Assessing Officer as per the formula provided in Rule 8D." 4. "On the facts and in the circumstances of the case as well as in law, the learned CIT(A) erred in holding that no direct or indirect interest expenditure was incurred by the assessee during that year for making investments during the year for earning exempt income and consequently erred in deleting the disallowance of indirect interest expenditure of Rs. 77,82,750/made by the Assessing Officer." 5. "On the facts and in the circumstances of the case as well as in law, the learned CIT(A) erred in restricting the disallowance of administrative and managerial expenditure attributable to the earning of exempt income to Rs. 7,12,177/- as against the disallowance computed by the Assessing Officer at Rs. 21,27,075/-." 6. "On the facts and in the circumstances of the case as well as in law, the learned CIT(A) erred in directing the A.O. to consider only Rs. 7,12,177/- for th....
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....ails. However, in view of findings in the earlier years and the order of ITAT in appellant's case for A.Y. 2005-06, the detailed findings of the AO and detailed appellants are not required to be considered at length. In respect of direct and indirect interest expenditure, the Honourable ITAT in A.Y. 2005-06, has given a finding of fact that no direct or indirect interest expenditure was attributable to earning of exempt income. This finding of fact of the Honourable ITAT being binding on the lower authorities, therefore the undersigned has to decide the issue with the presumption that upto 31-03-2006, no direct or indirect expenditure was incurred by the appellant for the purpose of making investment which yielded exempt income. Therefore, the only question for consideration is as to whether the appellant incurred any interest expenditure for the purpose of making investments during the year which had yielded exempt income. For this purpose only the investments made during the year are required to be considered and as to whether the same were made out of borrowed funds and also as to whether those investments yielded exempt income or taxable income. The appellant in its submis....
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....mpt income, the investments made up 'to immediately preceding assessment year only are required to be considered. In respect of those investments, the honourable ITAT had already given a finding. Therefore, following the !TAT order for A.Y. 2005-06, it is held that administrative and managerial expenditure of Rs. 7,12,177/- being 2% of total exempt income was attributable to the earning of exempt income. In the facts and circumstances, the disallowance made by AO at Rs. 21,27,075/- is reduced to Rs. 7,12,177/-. The balance disallowance is hereby deleted." 6. We have considered rival contentions, carefully gone through the orders of the authorities below and found that by invoking provisions of Section 14A, AO has disallowed interest expenditure of Rs. 77,82,750/- and other expenses amounting to Rs. 21,27,075/-. Whatever the investment was made, was made in earlier assessment year i.e. AY 2005-06. The department has also disallowed assessee's claim for interest by invoking provisions of Section 14A in the AY 2005-06. However, in an appeal filed by the assessee, the Tribunal has deleted the addition after having the following observation vide its order dated 17-9-2010 in ITA No....
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....in applying the said Rule to quantify the disallowance u/s 14A. Ground No. 4 of the assessee's appeal is accordingly allowed. 9. As regards the issue raised in ground No. 5 to 7 of the assessee's appeal relating to the disallowance made out of interest expenditure by invoking the provisions of section 14A, it is observed that elaborate submissions were made on behalf of the assessee before the A.O. as well as before the ld. CIT(A) to establish that the investment in shares was made out of its own funds and the borrowed funds of Rs. 31.98 crores were entirely utilized for the purpose of its business. At the time of hearing before us, the ld. Counsel for the assessee has taken us through the copies of such submissions placed in his paper book to demonstrate that the entire amount of borrowed funds was utilized for the purpose of its business by the assessee company and the investment in shares was made by it out of its own funds. As pointed out by him, the said borrowed funds to the extent of Rs. 21.59 crores were availed by the assessee in the earlier year and in the assessment completed for A.Y. 2004-05, the A.O. had accepted after verification of the relevant record that the borr....
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.... assessee's appeal. 7. During the year under consideration, the CIT(A) has followed the decision of the Tribunal for A.Y.2005-06 by observing that clear finding has been given by the Tribunal to the effect that no direct or indirect interest expenditure was attributable to earning of exempt income. Thereafter the CIT(A) examined the investment if any made during the year and whether the same was out of borrowed funds and has to exempt income or taxable income earned by the assessee on those investments. It was found that total investment during the year was Rs. 18.09 crores. It was further found that investment of Rs. 18 crores was out of borrowed funds but was only for a short period of two days. Whatever income was yielded through these investments, was offered as taxable income by the assessee in its return of income. It was also found by the CIT(A) that balance investment of Rs. 9,500/- was made in a company incorporated in Abu Dhabi, dividend income was also taxable. Accordingly, though disallowance was warranted u/s.14A, the CIT(A) also examined investment made after 31-3-2006, which had yielded only taxable income and recorded a finding to the effect that no direc....
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....nt of Rs. 8,10,000/-. The appellant's share holding in the said company is 45% only. Therefore, the appellant's share of profit and loss in the said company should have been only 45%. However, the appellant's share of profit/loss in the said company is 70%. The appellant has explained that as per laws/Rules of Abu Dhabi, Nonresident cannot have share capital of more than 45%. However, this restriction is not applicable in case of profit/loss sharing ratio. The appellant has explained that for getting more share of profit/loss i.e. 70%, it had invested / given an amount of Rs. 3.30 crore to that company as interest free loan/advance. Thus, the appellant has satisfactorily explained that the interest free loan of Rs. 3.30 crore has been given to the said company for the purpose of business only i.e. for getting more share of profit in that company. In the facts and circumstances, the decision of Supreme Court in the case of S.A. Builders (supra) is applicable in appellant's case that the appellant has given interest free loan of Rs. 3.30 crore to the said company considering the commercial expediency. In other words, the appellant has given interest free loans to the ....