TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 54
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.... to Rs. 26.64 lacs. Disallowance made under rule 8D(2)(iii) was substantially reduced by CIT(A) after observing that investment which are not capable of generating exempt income should be executed i.e., investment in Reliance Engineering (Middle East) DMCC of Rs. 3.81 crores and mutual funds of Rs. 34.38 crores. The CIT(A) also deleted the addition made on account of provision for wealth tax. Against this order of CIT(A) both the Assessee and Revenue are in appeal before us. 4. We have considered the rival contention and carefully going through the order of authorities below and found from record that addition made on account of provision for wealth tax amounting to Rs. 10,40,101/- was deleted by CIT(A) after having following observation: "4.3 I have considered the A.O.'s order as well as appellant AR's submission. Having considered both, I find that similar issue has been decided in appellant's own case in earlier assessment years and in the immediately preceding assessment year i.e. A.Y. 2007-08 vide Order No. CIT(A)-7/Addl. CIT. Rg. 3(3)/IT-921/09-10 dated 09/11/2010 whereby the addition made on this account is deleted. Accordingly, following the rule of consistency and also ....
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....during the course of appellate proceedings has submitted a without prejudice working of disallowance u/s. 14A out of interest expenditure. The appellant has submitted that if at all the disallowance is to be considered the same should not exceed Rs. 26,64,777/- worked out on scientific basis considering proximate relation of available funds and investment in securities giving rise to exempt income. Hence I find force in the appellant's submission that substantial interest of Rs. 45.09 crores were incurred by the appellant company on account of term loan, which was utilized for the purposes of business and hence the same cannot be held for the purpose of investments. I find force in the appellant's contention that the remaining expenditure can be taken under rule 8D(2)(ii)r.w.s 14A of the Act. Accordingly I direct the A.O to modify the computation under rule 8D(2)(ii) r.w.s 14A on the basis of aforesaid observation of the appellant's case. Accordingly the disallowance under rule 8D(2)(ii) is restricted to Rs. 26,64,777/- based on the aforesaid observations. The A.O. is directed to modify the same in accordance with section 14A r.w. rule 8D(ii) of I.T. Rules. 5.5 During the course ....
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....th revenue and assessee are in appeal before us. 6. With regard to disallowance of interest under section 14A, Ld. AR invited our attention to the balance sheet, Schedule C indicating secured loan, wherein assessee has taken a term loan from bank amounting to Rs. 500/- crores. As per Ld. AR interest was attributable to the term loan taken from bank and was not invested in securities income from which is exempt from tax. Our attention was also invited to Schedule M indicating interest and finance charges incurred by the assessee during the year amounting to Rs. 45.32 crores out of which interest of Rs. 45.09 crores was on fixed loans. In view of these factual matrix it was contented by the Ld. AR that no disallowance on account of interest is warranted. 7. In addition to Ld. AR also invited our attention to profit of Rs. 143.92 crores earned by the assessee during the year after claim of depreciation of Rs. 86.45 crores, it means there was cash accrual of income to the tune of Rs. 230.37 crores which was available to the assessee for investment in tax free securities. However increase in investment in shares and securities during the year was only Rs. 10.38 crores. As per learned ....
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....nding loans/ facilities to subsidiary or associate companies or for making any inter-corporate deposits, and (d) for any speculative purposes." We had also carefully gone through the sanction letter issued by IDBI Bank dt. 08/02/2007 indicating the purpose for which loans was sanctioned and the purpose for which loans could be utilized. 12. From the record, we found that total interest debited by assessee in its P&L account is Rs. 45.32 crores, out of which interest attributable to the term loan of Rs. 500 crores taken from the banks works out to be Rs. 45.09 crores. Disallowance u/s.14A can be made only with respect to the interest which is attributable to earning of exempt income. In the instant case before us, interest amount other than interest on term loans works to be Rs. 23 lakhs i.e., (45.32 crores - 45.09 crores). However, the interest incurred on the loan taken from bank is to be considered u/s.36(1)(iii) and since it is not incurred for earning exempt income, the same cannot be disallowed u/s.14A read with Rule 8D(2)(ii). As per the working of CIT(A), such disallowance of interest works out to be Rs. 26,64,777/-. However, nothing was brought on record to controvert t....