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2016 (5) TMI 1248
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....as served on the assessee and notice under section 142(1) of the Act was also issued. After perusing the details furnished by the assessee, the Assessing Officer has observed that the assessee has borrowed money from its group Companies and Firms and given loans to its own group companies and firms and the investments also in its group companies only. In the balance sheet, the firm shown Rs. 69,39,16,000/- as share application money. Till 31.03.2010 no shares were allotted to the firm. In the profit and loss account, the firm has shown Rs. 95,41,875/- as interest paid to others. Similar pattern of investment in share application money and incurred huge expenditure on interest, but no shares were allotted and the firm had not taken any effort to get the shares or to take back the money given as share application money. Therefore, the Assessing Officer was of the opinion that it is a clear diversion of interest bearing funds to other group companies. Accordingly, the assessee was show-caused as to why the share application money should not be taken into account for calculation of disallowance under section 14A r.w.r. 8D. After considering the detailed submissions of the assessee, the....
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....tion money. Till 31.03.2010 no shares were allotted to the firm. In the profit and loss account, the firm has shown Rs. 95,41,875/- as interest paid to others. Similar pattern of investment in share application money and incurred huge expenditure on interest, but no shares were allotted and the firm had not taken any effort to get the shares or to take back the money given as share application money. Therefore, the Assessing Officer was of the opinion that it is a clear diversion of interest bearing funds to other group companies. The assessee would be entitled to claim deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilized for the acquisition of shares only if shares were held as stock-in-trade and that would arise only if the assessee was engaged in trading in shares. So far as the acquisition of shares was in the form of investment and the only benefit the assessee derived was the dividend income which was not assessable under the Act, we are of the opinion that the disallowance under section 14A of the Act was squarely attracted and the Assessing Officer has rightly disallowed the claim. Our views are fortified by the decision in the case of Pr....
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....e on hand by placing reliance on judgments, which were not cited by either side? (iv) Whether or not the Tribunal was right in relying on the decisions inapplicable to the facts on hand by distinguishing the decision of the Hon'ble Supreme Court, which is squarely applicable?" With reference to the contentions urged, we have perused the orders passed by the assessing authority, the first appellate authority and the Tribunal with a view to find out as to whether the substantial questions of law framed in this appeal would arise for consideration of this court. It is not in dispute that the assessee had borrowed loans and invested the same in shares. Deduction is claimed by him of the interest amount paid on the borrowed loans. The amounts borrowed by the appellant were invested in shares and dividend is earned. When deduction for the interest paid is claimed, the dividend earned cannot be excluded from income. Computation of income has to be made taking the amount of dividend income earned by the appellant. The assessing authority considered the decision in Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC) relied upon by the learned counsel and ....
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....s not warranted in this case. No substantial questions of law much less the questions of law framed by the appellant will arise for consideration of this court. The appeal is devoid of merit and liable to be dismissed. Accordingly, the appeal is dismissed." 7. Similarly, in the case of CIT v. Smt. Leena Ramachandran 339 ITR 296, the Hon'ble Kerala High Court has held as under: "During the previous year relevant to the assessment year 2001- 02, the assessee paid interest at 24 per cent. per annum on funds borrowed for purchase of shares in a company. Her claim was that the acquisition of shares with the borrowed funds was for the purpose of controlling the company and since the borrowed funds were utilised for the acquisition of shares of the company under the control of the assessee, the utilisation of the borrowed funds was for business purpose entitling the assessee to deduction of interest under section 36(1)(iii) of the Income-tax Act, 1961. The Assessing Officer held that the assessee made investments by utilising the borrowed funds ill the form of acquisition of shares in the company and the only benefit the assessee got was dividend income of Rs. 3 lakhs....
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....n. That is the machinery provision as far as sec.14A is concerned. In that provision, it has been provided that if the Assessing Officer is not satisfied with the correctness of the computations made by an assessee, he shall compute the quantum in accordance with the method that may be prescribed. For this matter, Rule 8D has already been prescribed. Sub-sec.(3) further provides that even in a case where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub-sec.(2) read with Rule prescribed. Therefore, it becomes clear that even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner, literally speaking, it may even be considered for the purpose of convenience as a deeming provision. When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no exp....
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....inent to mention here that even the assessee did not rebut the findings of AO that the assessee was required to supervise and administer all the investments made. 5.2. It is pertinent to refer to the observations made by the Hon'ble Supreme court in the case of CIT vs Walfort Share & Stock Brokers (P) Ltd. (2010) 326 ITR 1 (SC) defining the scope of section 14A of the Act incorporated retrospectively from 1st April, 1962. Relevant portion is reproduced herein below : "17. The insertion of S. 14A with retrospective effect is the serious attempt on the part of the Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001 dt. 22nd Nov., 2001). In other words, S. 14A clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of S. 14A, the expenditure incurred in respect of exempt income w....
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....eory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under s. 14A. Reading s. 14 in juxtaposition with ss. 15 to 59, it is clear that the words "expenditure incurred" in s. 14A refers to expenditure on rent taxes, salaries, interest, etc. in respect of which allowances are provided for(see ss.30to37)." 5.3. It is further apposite to refer to the decision of the ITAT Mumbai Bench in the case of ACIT vs Citicorp Finance (India) Ltd. (2007) 108 ITD 457 dated 21st November, 2006 wherein on similar facts, the contention of the assessee that it had incurred no expenditure for earning high dividends was negated. The relevant portion of the decision is reproduced herein below:- "Briefly stated, the facts of the case are that the assessee company was engaged in the business of providing financial services like commercial vehicle financing, equipment finance, advances against financial assets and inter-corporate loans and deposits. During the course of the assessment proceedings, the AO noticed that the assessee had earned dividend of Rs. 4,85,24,362 which was exempt from tax. Taking note of s. 14A of the IT Act, he calle....
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.... attention of Chennai Bench of this Tribunal in Southern Petro Chemical Industries vs. Dy. CIT (2005) 93 TT] (Chennai) 161. After comprehensive consideration of all the relevant aspects of the case including the provisions of law, the Chennai Bench has held that 8 ITA Nos.1032&1238/Kol/2012 M/s.Coal India Ltd. A.Yr.2008-09 investment decisions are very strategic decisions in which top management is involved and therefore proportionate management expenses are required to be deducted while computing the exempt income from dividend. In Harish Krishnakant Bhatt vs. ITO (2004)85TT](Ahd) 872 : (2004) 91 ITD 311 (Ahd), the Ahmedabad Bench of this Tribunal has held that, the dividend income being exempt under S. 10(33), the interest on capital borrowed for acquisition of relevant shares yielding such dividend cannot be allowed deduction by operation of S.14A.In Dy. CIT vs. S.G. Investments & Industries Ltd. (2004) 84 TT] (Kol) 143 : (2004) 89 ITD 44 (Kol), the Calcutta Bench of this Tribunal has laid down two propositions: one, in view of s. 14A inserted in the IT Act with retrospective effect from 1st April, 1962, pro rata expenses on account of interest relatable to investment in shares ....
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....essee in earlier years, and during the current year as well the assessee made an investment of Rs. 19 crores. Whether to invest or not to invest and whether to retain the investments or to liquidate the same are very strategic decisions which the management is called upon to take. These are mind-boggling decisions and top management is involved in taking these decisions. This decision making process is very complicated and requires very careful analysis. Moreover, the assessee has to keep track of various dividend incomes declared by the investee companies and also to keep track of the dividend income having been regularly received by the assessee. This activity itself calls for considerable management attention and cannot be left to a junior clerk. The Hon'ble Supreme Court in the case of United General Trust Ltd. (supra), applying the decision of Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC), reversed the decision of the Hon'ble Bombay High Court in CIT vs. United General Trust (P) Ltd. (supra), wherein the question was as under: "Whether, on the facts and in the circums....
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....he decisions relied upon by the assessee to support the aforesaid grounds of appeal are distinguishable on facts and law and does not help the cause of assessee. The assessee relied upon the decision of various courts of law listed as under : (i) Maxopp Investments Ltd. Vs CIT 347 ITR 272 (Del) (ii) Godrej & Boyce Mfg.Co.Ltd. vs DCIT 328 ITR 81 (Bom) (iii) Relaxo Footwears Ltd. Vs Addl.CIT (2012) 50 SOT 102 (iv) REI Agro Ltd. Kolkata vs D CIT ITA No.1331/Kol/2011 (v) DCIT vs Ashish Jhunjhunwala In all of the aforesaid judgements, the ratio was that the AO failed to record any satisfaction u/s 14A read with rule 8D whereas in the present case proper satisfaction was recorded by the AO u/s 14A of the Act. Reliance was placed on the judgments rendered in the case of REI Ltd., Kolkata (supra) In the aforesaid decision, the issue with respect to the disallowance made under section 14A read with Rule 8D(2)(iii) was restored to the file of AO and no judgment was rendered on merits of the contentions of assessee. The assessee has submitted that for disallowing the expenditure incurred for earning the exempt income there must be a nexus ....