TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 579
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....de under section 14A read with rule 80(2)(iii) may be deleted. 2. The Ld. CIT(A) failed to appreciate that the A.O. erred in invoking provisions of section 14A, since the provisions of section 14A are not automatic and there has to be a proximate cause for disallowance as laid down by the Apex Court in the case of CIT Vs. Walfort Share and Stock Brokers Pvt. Ltd. 3. The Ld. CIT (A) failed to appreciate that the A.O. failed to observe that the majority of the investments were made for furtherance of the business and hence Section 14A has got no application. 4. The Ld. CIT (A) failed to appreciate that the A.O. failed to observe that the provisions of section 14A are not applicable when no exempted income is earned. 5. Without prejudice to the above, if the rule is supposed to be applied correctly, the Ld. CIT(A)) failed to appreciate that the investments made in the subsidiary/associate companies are on account of business expediency and hence investment made in its subsidiary/associate companies are not to be reckoned for disallowance u/s. 14A r.w.r 8D". 2. Brief facts of the case are that the assessee company which is into the business of stock broking filed its retu....
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....he investments made by the assessee in the shares of the subsidiary company is not in dispute and merely because the assessee has not earned the exempt income, the assessee cannot escape the provisions of section 14A r.w.r 8D of the Act. She placed reliance upon the circular of the CBDT No.5/2014 dated 11.02.2014. 6. Having regard to the rival contentions and the material on record, we find that the provisions of section 14A are applicable to expenditure which has been incurred for earning of exempt income irrespective of whether the investment is for business or non business purposes. Business income of certain business entities such as 10% EOU's or industries set up in free trade zones etc., are fully exempt from tax and any expenditure incurred for earning of such income is to be disallowed u/s 14A of the Act. Therefore, the assessee's contention that since the assessee has made the investment in the subsidiaries for generating revenue and not for earning of dividend income, the provisions of section 14A are not applicable is not acceptable. But, however, it is subject to the assessee earning exempt income during the relevant previous year. It is seen that the assessee has not ....
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....ious year. [Para 14] The provisions of section 10 in Chapter III dealing with 'Incomes not included in total income' commences with the phrase 'In computing the total income of a previous year, any income falling within any of the following clauses shall not be included........' [Para 14] The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. The language of section 14A(1) should be read in that context and such that it advances the scheme of the Act rather than distort it. [Para 15] In conclusion, the provisions of section 14A, read with rule 8D of the rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The question of law are answered in favour of the assessee and against the department and the appeal allowed. [Para 16]" We find that the facts of the case before us are sim....
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....l rate of 2300/- per sft against the market price of Rs. 3,500 to Rs. 4,000 per sft. It was submitted that since it derived the commercial benefit in the form of concessional plots by investing in the shares. It is submitted that such plots in turn can be sold at market price along with other plots and the assessee is thus benefitted by virtue of share holding in M/s. Sri Sai Ram Projects Ltd. Therefore, according to him, the angle of the commercial expediency has to be considered and the disallowance u/s 14A cannot be made. 11. In support of this contention, the assessee relied upon the decision of the Hon'ble Apex Court in the case of S.A. Builders vs. CIT (288 ITR 1 (S.C). The AO however, was not convinced with the assessee's contentions. He observed that in the case of S.A. Builders (Supra), interest bearing funds of the parent company were given as interest free loans to its subsidiaries for specific business purposes as against the facts of the case of the assessee where the interest bearing funds were utilized for the purpose of acquiring the shares of different business entity and the income on the shares only in the form of dividends which is exempt from tax u/s 10(38....