TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1011
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 14A of the Act, in the same proportion as the Dividend Income bears to th total receipts, for the purpose of computing income from Business or Profession and also for computing the Adjusted Book Profit u/s 115JB of the Act. 3. The CIT (A) erred in not considering the alternate contention of the Appellant of first reducing the gross establishment expenditure by the amount already disallowed by the Appellant in its Return of Income amounting to Rs. 5,67,34,086 as well as the expenditure disallowed by the Assessing Officer during assessment proceeding amounting to Rs. 73,93,030 and only considering the balance establishment expenditure for proportionate disallowance under the provisions of section 14A of the Act as well as for computing the Adjusted Book Profit u/s 115JB of the Act. 4. The CIT (A) erred in confirming the disallowance of the alternate claim of the Appellant that should any part of the expenses of the Appellant, including interest, be disallowed, the Appellant should be permitted to capitalize such expenses and enhance the cost of acquisition of the shares to which the said expenses relate. 5. The CIT (A) erred in confirming the disallowance of profession....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts relating to the above grounds are that during the assessment proceedings, the AO noted the assessee was having activities of purchasing the share in group companies for the purpose of controlling interest and also promoted some of the companies for which assessee borrowed the funds and paid the interest. The assessee claimed the deduction of such interest u/s. 36(1) (iii) of the Income Tax Act. The AO further noted that the assessee's balance sheet as on 31.03.2004 reflect total unsecured loan at Rs. 1062.8 crore, while the investment made in various shares was at Rs. 1727.83 crores. The profit and loss a/c. for F.Y 2003-04 reflect that assessee paid/claimed gross interest of about Rs. 75.21 crores, while it had received dividend of Rs. 6.16 crores which was claimed as exempt. The assessee also reflected receipt of interest of Rs. 7.28 crores. The assessee in computation of total income had suo moto disallowed Rs. 39 crores u/s. 14A of the Act. On enquiry from AO for the method and calculation of such amount, the assessee submitted that the working was based on proportionate disallowances of net interest of Rs. 67.9 crores (75.21 -7.28) as proportion of loan fund to total fun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urpose of the assessee for its activity resulting in exempt income and also incidental by product in the form of dividend. The AO discussed in detail the order of the co ordinate Delhi Bench of the Tribunal in the case of Everplus Securities & Finance Ltd. 101 ITD 151 and also referred to the judgment of Hon'ble Madras High Court in the case of K. S. Venkati Subbiah Reddier 221 ITR 181 and Hon'ble Delhi HC in the case of Bharat Development Pvt. Ltd. 133 ITR 470 for the proposition that purchasing of shares for controlling interest cannot be treated as business activities. In respect of contention of the assessee that the dividend income was incidental to the business activity of the assessee, the AO rejected it by relying on the decision of the Hon'ble Bombay High Court judgment in the case of Amritaben R. Shah 238 ITR 777 and M/s. Macintosh Finance Pvt. Ltd. of Hon'ble ITAT, Mumbai 'F' Bench. The AO also rejected the alternative contention of assessee that dividend was received on the total value of investment of Rs. 93.73 crores, while there was no dividend received on investment of Rs. 1689 crores and therefore, interest disallowances should be restricted for the borrowed fund u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sociated companies. That the entire investments were made for business purposes for having control over subsidiary and associated companies. He, therefore, has contended that the interest expenditure incurred by the assessee is otherwise allowable as business expenditure u/s 36(1) (iii) of the Act. In the context of disallowance under the provisions of section 14A, the Ld. AR relying upon the decision of the Hon'ble Delhi High Court in the case of 'Joint Investment Private Limited vs.CIT' reported in 372 ITR 694 and of the Hon'ble Punjab & Haryana High Court in the case of 'PCIT vs. Empire Package Pvt. Ltd.' [ITA No. 415 of 2015 date of decision 12.01.2016] has contended that disallowance u/s 14 A cannot exceed the exempt income earned during the year. He has further submitted that the law declared by the High Court of the other State, in the absence of any contrary decision of the Jurisdictional High Court is binding on the Tribunal. He has further relied upon various case laws to stress the point that even if the assessee under a mistake or misconception has over assessed itself in the return of income, the Tribunal can give relief to the assessee to the extent the assessee is o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nment and disallowance of other expenses in case of the activities of the HO vis-à-vis Section 14A for normal computation and u/s 115KJB." (vii) The disallowance is only under Section 14A is established conclusively and for this purpose reference is made to the computation of income in paragraph 14 at page 24, wherein the following additions are made in words quoted herein below "i. Interest u/s 14A (per para 3) 75,20,81,011 ii. Other expenses u/s 14A (para 4) 1,31,97,494" GROUND BEFORE CIT(A) AND HIS ORDER ARE ONLY ON SECTION 14A 2 (i) In view of the fact that the disallowance was made only under Section 14A, the Ground of Appeal preferred by the Appellant to the CIT (A) was also confined to Section 14A. This is clear from Ground 2 in the aforesaid Appeal which reads as under: "2.(a) The ITO erred in disallowing the entire interest expenditure of Rs. 75,20,81,011/- under the provisions of Section 14A, for the purpose of computing income from Business or Profession and also in the computation of taxable income u/s. 115JB." "2. (b) The ITO erred in disallowing establishment expenditure amounting to Rs. 1,31,97,494/- in the same proportion as the Dividend Income bear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowance in Section 14A is only to the extent of expenditure incurred in relation to the tax exempt income. The Punjab & Haryana High Court dismissed the Departmental Appeal in the above case where the following question was raised by it. "Whether in the facts and circumstances of the case, the Hon'ble ITAT is justified in law to hold that the disallowance made under Section 14A read with Rule 8 D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule?" (ii) Mumbai Benches of the Hon'ble Tribunal as also others have taken the above view. Some of such Hon'ble Tribunal Orders are as follows: a) Syntel Ltd. vs. JCIT (OSD) - ITA No.3413/N/2007 (ITAT Mumbai) b) Daga Global vs. ACIT - ITA No.5592/M/2012(ITAT Mumbai) c) Sahara India Ltd. vs. DCIT (2014) 148 ITD 336 (ITAT Delhi) LAW DECLARED BY HIGH COURT IS BINDING ON TRIBUNAL IN ANOTHER STATE 5. The Appellate Tribunal is obliged to respect the law laid down by the High Court though of a different state, so long as there is no contrary decision of any other High Court on that question. In the absence of contrary High Court judgments, the above decisions of Delhi Hig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bombay High Court observed as follows: "Article 265 of the Constitution of India unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law." (iv) Balmukund Acharya - 310 ITR 310 (Bombay High Court) In this case, the Bombay High Court applied the above decision of Nirmala L. Mehta and at page 318 in paragraph 32 observed as follows: "Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected." (v) CIT vs. "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) Brokers - 349 ITR 336 (Bombay High Court) The Bombay High Court in this case held that the Appellate authorities have jurisdiction to deal with grounds which become available on account of change of circumstances or law and thus, entertain a deduction which was not claimed in the return of income. (vi) Guharat Gas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the assessee in respect of expenditure in relation to income which does not form part of the total income. The Ld. DR has further stated that the expenditure includes both direct and indirect expenditure incurred in relation to the exempt income. That there is fundamental difference between the "Receipt" and "Income". He has further contended that this concept has to be understood and applied in reference to "Dividend" and "Income by way of dividend". That 'income by way of dividend' which can be claimed as exempt u/s 10 (34) of the Act refers to the total dividends received minus the expenditure incurred in relation to the earning of such dividends. That the concept of income includes a loss i. e. negative income or zero i. e. nil income. That the expenditure incurred in relation to earning of exempt income whether such activity yields positive income, nil or negative income (loss) is to be disallowed u/s 14A of the Act. He has further relied upon the provisions of section 115-O (5) of the Act wherein it has been provided, "no deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ( Baroda )(P) Ltd V/s. Union of India (1985) 22 Taxman 49 through dealing with section 80M of the Act (omitted w. e. f. 01.04.2004 but related to dividends and deduction /relief out of receipt of dividend). Hon'ble Apex Court traced, considered and explained the history of introduction of such provisions related to dividend in this landmark judgement. (c) The Hon'ble Constitutional bench of Supreme Court while dealing with the construction of sec. 80M of the Act, overturned, its earlier decision of 3 Member Bench in the case of Cloth Traders ( P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 and observed that "To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. A.M.Y. Delameterat page 18: "a Judge ought to be wise enough to know-that he is fallible and therefore ever ready to learn : great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead : and courageous enough to acknowledge his errors." Hon'ble Apex Court at para 14 to 17 interpreted the sec.80M as follow: "We may, therefore, first examine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in such a case, there shall be allowed in computing the total income of the assessee, a deduction 'from such income by way of dividends' of an amount equal to the whole of such income or 60 per cent of such income, as the case may be, depending on the nature of the domestic company from which the income by way of dividends is received. The opening words describe the condition which must be fulfilled in order to attract the applicability of the provision contained in sub-section (1) of section 80M. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. 'Gross total income' is defined in section 80B(5) to mean 'total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under section 80-O.' Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds', we have to ask the question : what is the income by way of dividends from a domestic company included the gross total income and that would obviously be the income by way of dividends computed in accordance with the provisions of the Act. It is difficult to appreciate how, when we are interpreting the words 'such income by way of dividends', we can make a dichotomy between the category of income by way of dividends included in the gross total income and the quantum of the income by way of dividends so included. This Court observed in Cloth Traders ( P.) Ltd.'s case (supra) that the words 'such income by way of dividends' as a matter of plain grammar must be substituted by the words 'income by way of dividends from a domestic company' in order to arrive at a proper construction of the section, but there is a clear fallacy in this observation, because in making the substitution it stops short of the words 'income by way of dividends from a domestic company' and does not go to the full length to which plain grammar must dictate us to go, namely 'income by way of dividends from a domestic Company included in the gross total income', ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e gross total income: what would be included would only be the amount of dividend as computed in accordance with the provisions of the Act. If that be so, it is difficult to appreciate how far the purpose of computing the total income from the gross total income any deduction should be required to be made from the full amount of the dividend. The deduction required to be made for computing the total income from the gross total income can only be from the amount of dividend computed in accordance with the provisions of the Act which would be forming part of the gross total income. It is, therefore, clear that whatever might have been the interpretation placed on clause (iv) of sub-section (1) of section 99 and section 85A, the correctness of which is not in issue before us, so far as sub-section (1) of section 80M is concerned, the deduction required to be allowed under that provision is liable to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee." d) Hon'ble Supreme Court in the case of ACG Associated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (iii) The section 2(45) of the Act provide an exhaustive definition of "total income" as "Total amount of income referred to in sec.5, computed in the manner laid down in this Act." (iv) Sec.5 of the Act defines the scope of "Total income". (v) Sec.8 of the Act though has heading as "dividend income" but the same is to categorize the time when such dividend (both final or interim) is to be included in total income. (vi) Sec.10 (34) is the section for consideration which can be broken as follows for understanding. * Any income * By way of dividend * Referred to in sec.115-O (vii) Sec.10(34A), 10(35), 10(35A), 10(36), 10(37) and 10(38) of the Act are similarly worded with phrase "any income by way of" . This is because Chapter III of the Act has the heading "Income which do not form part of total income". It is therefore, first we have to compute the income following the matching principle which says receipt minus expenditure/outgoing before taking a decision whether such income is excludable or not forming part of "Total income" (viii) Section 14 of the Act under Chapter IV with the title "Computation of total income" provides various heads of income. The sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting into positive income or loss or nil income. Similarly, from a source there can be nil receipt which may result into loss i. e. negative income or nil income. There can be a receipt (sec.66 r. w. Chapter VII) the income resulting there from though includable but no income tax is charged resulting into non application of sec.14A of the Act. There can be dividend which is not referable u/s. 115-O of the Act i.e on which no dividend distribution tax (DDT) is paid and therefore, for receipt of such dividend, income under the head "income from other source" is required to be computed where expenditure related to such dividend are admissible if eligible u/s. 57 (iii) of the I.T. Act. The basic intention and purpose of introducing sec.14A of the Act was to enlarge the scope of the apportionment of various expenditure irrespective of the fact whether the business or activities of an assessee is divisible or indivisible. Such intention and object of Hon'ble Legislature cannot be disregarded delving into consideration of receipt of dividend rather than considering income from dividend. The scope for prohibiting the dual benefit which were permissible prior to insertion of 14A of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Everplus Securities &Finance Ltd (101 ITD 151) wherein relying on the observation particularly in respect of clause 5 of sec.115-O (para 5.15 of the Hon'ble ITAT order), the Hon'ble ITAT considered Hon'ble ITAT Kolkata Bench order in the case of S.G.InvestmentInds. Ltd. Hon'ble ITAT Kolkatta observed following important observations in respect of section 10(33) (as now 10(34)) and sec.115-O of the Act. (i) The section 115-O(1) beginning with the expression 'notwithstanding anything contained in any other provisions of this Act' is to give the provisions of section 115-O(1) in case of conflict, an overriding effect over any other provisions of the IT Act, 1961. It is thus clear that section 115-O(1) is a specific provision overriding in case of conflict, the general provisions. The sub-section (5) of section 115-O has made it clear that no deduction under any other provisions of Income-tax Act shall be allowed to the company or a shareholder in respect of dividend income which has been charged to tax under section 115-O(1) or the tax thereon. Thus, this sub- section has restricted the allowability of all deductions, which may otherwise be allowable under any other provisions of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Co. P. Ltd. V/s. ACIT - (2009) 116 ITD 492 (Mum) dealt with similar facts. (i) Hon'ble ITAT in this order at para 8 & 9 considered following facts; "8. In the course of hearing, a query was raised from the Bench as to how the deduction could be allowed under the head 'Profits & Gains from Business/Profession' particularly when neither of the receipts from such business was assessable under such head. It was clarified to him that in the business of holding of investments in shares, the receipts were either by way of dividends or sale proceeds of shares. Both the receipts were not assessable under the head 'Profits & Gains from Business/Profession' but were assessable either under the head 'Income from other sources' or under the head 'Capital Gains'. Thus, computation of income under the head 'Profits & gains of business or profession' did not arise. 9. Faced with such query, it was submitted that the assessee cannot lose the statutory deduction which is otherwise allowable under section 36(1)(iii) merely because receipts from such business are not assessable under the head 'Profits & Gains from Business/Profession'. Reliance was placed on the judgment of Hon'ble Supreme C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... such business has to be excluded from the head 'Profits and gains from business or profession' since such receipts falls under the specific heads. Income can be computed only after allowing deductions as provided under the head under which income is to be computed. No other deduction is permissible except provided under that head. The interest paid on the borrowed funds, at the most, could be allowed against the dividend income if investment is made to earn the dividend income. The contention of the assessee is that investment was not made to earn dividend income. Therefore, such deduction could not be allowed even against the dividend income. Even otherwise, such income being exempt the question of deduction against dividend income becomes academic. The interest paid as per the contention of the ld. counsel for the assessee, could relate to the profits arising from sale of investments since the main object was to hold the investments. Since income arising from sale of investment has to be computed under the head 'Capital Gains', the deduction has to be allowed only in accordance with the provisions specified under the head 'Capital Gains'. The Legislature was aware of the aspect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utation of income under various heads. e) Hon'ble HIGH COURT OF MYSORE in the case of United Breweries ([1973] 89 ITR 17) held "It is well-settled that the mere fact that a man holds all the shares in a company does not make the business carried on by that company his business, nor does it make the company his agents for the carrying on of the business. That proposition is just as true if the shareholder is itself a limited company. It is also well-settled that there may be such an arrangement between the shareholders and a company as will constitute the company the shareholders' agent for the purpose of carrying on the business and make the business the business of the shareholders. It is, therefore, a question of fact in each case to be decided whether the subsidiary was carrying on the business as the company's business or as its own. The business of a subsidiary company can be regarded as the business of the parent-company if in addition to the capitalist control; it has 'functional control' over its subsidiary." In the case of appellant, the question of business carried on by the group companies with that of appellant's own business is required to be considered if the cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oup companies for the purpose of acquiring controlling interest and for the acquisition of other companies for the group. The acquisition of controlling interest in companies was not the business of the assessee as the assessee had not acquired controlling interest in any company with a view to managing the same. The assessee is an investment arm of the Zee group who has the management control over the companies. Advancing money interest free is also not the business of the assessee. Therefore, acquiring shares in the group companies for maintaining the controlling interest does not promote the business of the assessee and is only helpful to the group for having the management control over the companies. The ld. AR has relied on the judgment of the Hon'ble Supreme Court in the case of S.A. Builders (288 ITR 01) to argue that advances had been made on commercial expediency and therefore interest on borrowings should be allowed. It has not been shown to us as to how business of those companies promotes the business interests of the assessee so that interest free advances to them could be justified on commercial expediency. Reliance has also been placed on the judgment of the Hon&....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the total income of a previous year, shall not claim a deduction in respect of the expenditure incurred in relation to earning such income. Section 14A is founded on a valid rationale that the basic principle of taxation is to tax net income, that is to say, gross income minus the expenditure. On that analogy as the Supreme Court observed in Walfort Share & Stock Brokers (P.) Ltd.'s case (supra), the exemption is also in respect of net income and expenses allowed can only be in relation to the earning of taxable income. Therefore, it cannot be said that an absurdity would result on the application of the literal interpretation of section 14A [Para 45]". i) The CBDT vide circular no.5/2013 dt.11.02.14 through a clarification in respect of disallowance of expenses under Rule 14 A of the Act clarified as follows: "SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - CLARIFICATION ON DISALLOWANCE OF EXPENSES UNDER SECTION 14A IN CASES WHERE CORRESPONDING EXEMPT INCOME HAS NOT BEEN EARNED DURING THE FINANCIAL YEAR CIRCULAR NO.5/2014 [F.NO.225/182/2013-ITA.II], DATED 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee should have earned such exempt income during the financial year under consideration. 5. The above position is further substantiated by a language used in Rule 8D(2)(ii) & 8D(2)(iii) of I.T. Rules which are extracted below: "(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt of amount computed in accordance with the following formula, namely:- A/B/C Where ..... B=the average of value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;" (iii) an amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year." (Emphasis added) 6. Thus, in light of above, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D read with section 14A of the Act provides for disal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tribunals (as relied on by appellant) required to distinguish. The ratio of Jurisdictional High Court in the case of Godrej & Boyce Manufacturing Co. is binding. The ratio of various cases relied on by appellant are of other Hon'ble Courts and Tribunals but no such ratios are laid down by Hon'ble Jurisdictional High Court or Hon'ble ITAT, Mumbai. Rather the ratios of Hon'ble ITAT are in favour of revenue preposition. (4) The ld. CIT(A) order dt. 02.05.2008 a) At para 8 page 10,Ld.CIT(A) considered following undisputed facts i. total loan fund of Rs. 1062.8 crs. ii. Interest paid on borrowed capital and claimed in P&L A/c. is Rs. 75.20 crs. iii. Investment as per the balance sheet as on 31.03.2004 is of Rs. 1727.82 crs. iv Dividend receipt is of Rs. 6.16 crs. v. The assessee in its computation of income (annexure B at Sr.32 of appellant's paper book) suo-moto disallowed expenditure for earning dividends at Rs. 39 crs. vi. The assessee admitted that interest paid on money borrowed for the purchase of share in group concern/companies for the purpose of controlling interest and claim the same deductable u/s. 36(1)(iii) of the Act, hence direct nexus is there between bor....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s. ACIT -12 SOT 625 does not permit such disallowances in the absence of any method which was subsequently provided by sec.40A (2) of the Act. v. The assessee vide its letter dt.18.2.2008 submitted before the LD.CIT(A) about complete detail of head office expenditure of Rs. 93.39 crs. expendituresuo-moto disallowed by the assessee in the return of income by Rs. 5.67 crs. (excluding Rs. 39 crs) and disallowances of expenses made by the AO in the impugned assessment order of Rs. 0.74 crs. (disallowance of balance interest of Rs. 36.21 crs excluded )for the contention disallowance can be considered on an amount of Rs. 10.26 crs. at the rate of 7.57 % i.e disallowance of Rs. 7768850/- instead of Rs. 13197494/. d) The Ld. CIT(A) at para 10 page 15 held that i. The appellant has merely contended that the disallowance purely on conjectures and surmises without establishes any nexus between the expenditure and head office and the tax free income cannot be made and sustained. However, the appellant has not denied that parts of these expenses are also related to the investment. ii. In reference to reliance on Vimco Seedling Ltd., the amendment brought in the sec.14A by Finance Act, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... control over subsidiary and associated companies the undisputed facts are that the assessee is an investment & finance company and a promoter of new companies in hi-tech field. As a business activity, the assessee holds investment in the share capital of the companies promoted by it as controlling interest and therefore, takes active interest in the business of these companies. The entire investments were made for business purposes for having control over subsidiary and associated companies. 12. We find that the above issue is now squarely covered by the decision of the Jurisdictional Hon'ble Bombay High Court in the case of "CIT, Panaji, Goa vs. Phil Corpn. Ltd." (2011) 202 Taxman 368 wherein it has been held that where the investment in shares of sister/subsidiary company is made to have control over that company and further that such an investment was accordingly part of the business of the assessee, in that event the assessee is entitled to deduction of interest paid on the borrowed amount under section 36(1)(iii) of the Act. We, further find that recently the Hon'ble Delhi High Court in the case of "Eicher Goodearth Ltd. vs. CIT" (2015) 60 taxman.com 268 (Del.) has held that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO and the CIT (A). As has been pointed out on behalf of the Revenue, at that stage, the parties were more concerned with whether net or gross expenditure had to be deducted under Section 80M. At the same time, the assessee, we notice did put his contention both to the CIT (A) and ITAT. 10. This Court, therefore, is of the opinion that the law as declared by the Supreme Court in such cases is that if the expenditure is incurred for the purpose of promotion of business- more specifically as in the facts of this case to retain control or as part of a strategic investment of the assessee/company, such expenses - by way of interest outgo would have to be treated under Section 36 (1) (iii) and not under Section 57. The matter is, therefore, remitted to the AO for full appraisal of the fact situation and findings in the light of our conclusions. If, as a result of the AO's determination, it is found that such expenditure is incurred, the net expenditure is obviously to be taken into consideration under Section 80M of the Act in the facts of the present case." 13. The above issue is thus squarely covered in favour of the assessee by the above referred to decisions of the H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces". That is not so under Section 37 which allows deduction of expenditure "incurred wholly and exclusively for the purposes of the business". Under Section 57(iii), deduction will not be allowed if the expenditure is not incurred for the purpose of earning income falling under the head "Income from other sources". 15. The Hon'ble High Court has thus made a distinction between the provisions of section 57(iii) and that of section 37 of the Act. The Hon'ble High Court has thus observed that under section 57(iii) it is necessary that the primary motive of incurring it is directly to earn income falling under the head "Income from other sources". That is not so under Section 37 which allows deduction of expenditure "incurred wholly and exclusively for the purposes of the business". In the case of the assessee, admittedly, the strategic investments were made for business purposes. The assessee being an investment & finance company and a promoter of new companies, as a business activity, holds investment in the share capital of the companies promoted by it as controlling interest and therefore, takes active interest in the business of these companies. 16. The Hon'ble Supreme Court in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." 18. A perusal of the above conclusion reveals that though as per the provisions of section 37, it is not necessary that the loan amount should be exclusively used in the business of the assessee. However, the requirement is that it should be used for the purpose of the business which n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Share & Stock Brokers Pvt. Ltd." (Supra) as well as of the Hon'ble Bombay High Court in the case of "Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT" (supra) that no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to exempt income. It is an admitted fact that the assessee had earned substantial dividend income during the year out of the investments made. The assessee has not contested the applicability of the provisions of section 14A in relation to the exempt income received. The assessee has chosen not to rebut the contentions of the DR that only the net dividend income can be allowed to be exempted from tax and not the gross dividend receipts. The Ld. AR has also not advanced any arguments regarding the applicability of the provisions of section 115-O of the Act. 22. Since the assessee has not contested the applicability of section 14A of the Act in relation to the exempt dividend income received by it, hence we do not deem it necessary to deliberate on the contentions raised by the Ld. DR regarding the purpose and object of insertion of section 14 A of the Act. Even no dispute has been raised by the assessee regarding the concept of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 8D is not retrospective and applies from A.Y. 2008-09. For the years for which Rule 8D is not applicable and in the event of that the AO is not satisfied with the explanation/working given by the assessee, disallowance under section 14A has to be made on a reasonable basis. Almost similar view has been expressed by Hon'ble Delhi High Court in the case of 'Maxopp Investment Ltd. & Others' vs. CIT (247 ITR 162). Hence, the rule 8 D of the Income Tax Rules is not applicable for the Assessment year under consideration. Disallowance under section 14 A, thus, can be made on some reasonable basis for the year under consideration and not under rule 8 D as held by the Hon'ble Bombay High Court in the case of 'Godrej & Boyce Manufacturing Co. Ltd'. (supra). 26. It may be further observed that this is not a case where no exempt income was received by the assessee despite making investments. The assessee admittedly has earned a substantial tax exempt dividend income of Rs. 6.16 Crores during the year. Even otherwise, it is also not the case of the Revenue that the exempt income earned by the assessee is very less or negligible. It is also not disputed by the AO that the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ose of disallowing any expenditure incurred in relation to the said income. Almost identical issue has been taken by the Hon'ble Allahabad High Court in the case of "CIT Kanpur vs. M/s. Shivam Motors Pvt. Ltd." in ITA No.88 of 2014 vide order dated 05.05.2014; by the Hon'ble Gujarat High Court in the case of "CIT vs. Corrtecth Energy Pvt. Ltd." in ITA No.239 of 2014 vide order dated 24.03.2014 and by the Hon'ble Bombay High Court in the case of "CIT vs. M/s. Delite Enterprises" in ITA No.110 of 2009 vide order dated 26.02.09. 28. The ld. DR has not pointed out any contrary decision to the above proposition. 29. In view of the overall facts and circumstances of the case, as discussed above, and in the light of the above decisions of the higher courts, which are otherwise binding on this Tribunal, we are of the view that disallowance u/s 14 A in this case cannot exceed than the tax exempt income earned by the assessee during the year. 30. So far as the contention that the assessee itself has offered disallowance in the return of income more than the exempt income earned is concerned, the ld. AR has relied upon various case laws as mentioned in the written submissions dated 21.06.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3) 199 ITR 351 has observed that the basic purpose of an appeal procedure in an income tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either by the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The Hon'ble Bombay High Court in the case of "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aim by way of additional ground. Even otherwise, the Ld. CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the assessee is not liable to pay Capital Gains Tax, though originally he had subjected himself to the said tax as per his return of income. The AO is directed to process the claim of refund in this respect as per provisions of the law." 31. Respectfully following the above decisions of higher courts and that of co-ordinate benches of the tribunal, we direct the AO to restrict the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear under consideration and disallowed the remaining expenses. 36. We find that this issue is also covered with the decision of the Hon'ble Supreme Court' in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, wherein the Supreme Court held that the expenditure in raising loans or issuing debentures would be revenue in nature, irrespective of whether the borrowal is a long term or short term one. It was held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained. This issue is accordingly decided in favour of the assessee. 37. Grounds No. 8 has not been pressed by the assessee being taken as alternative ground to ground No. 7. This Ground is therefore dismissed as not pressed. 38. Ground No. 9 has also not been pressed by the ld. AR owing to the smallness of the amount involved. This ground is therefore, dismissed as not pressed. 39. Ground No. 10 is also not pressed by the assessee in view of the relief granted in rectification ....