TaxTMI 
TaxTMI 
2017 (6) TMI 647
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....te deposits as business income though the assessee was not in the business of financing. 3. The brief facts of the case are that the assessee is a private limited company engaged in the business as property developers, filed its return of income for the assessment year 2011-12 on 30.09.2011 declaring loss of Rs. 37,08,97,186/-. The case was selected up for scrutiny under CASS and notice U/s.143(2) of the Act was issued. Thereafter the assessment order was passed U/s. 143(3) on 21.02.2014 wherein the Ld.AO made various additions. 4. Ground No.i :- Deletion of addition towards professional fees of Rs. 25,89,854/-. During the course of scrutiny assessment proceedings, it was noticed by the Ld.AO that the assessee has claimed Rs. 25,89,854/- as professional and consultancy charges which was paid to the consultant without deducting TDS. On query it was explained by the Ld. Assessee's representative that the aforesaid amount was paid to M/s. Mayor Brown LLB towards professional fees for services rendered outside India with respect to documentation. It was further clarified that M/s. Mayor Brown LLB did not have any permanent establishment in India and hence the income did not accrue o....
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....nd No.ii: Deletion of the disallowance u/s.14A of the Act for Rs. 4,30,98,790/- :- It was observed by the Ld.AO that the assessee has made investment of Rs. 1167,56,40,860/- in shares as on 31.03.2011 and the investment as on 01.04.2010 was Rs. 129,49,39,630/-. Since, the dividend income earned by the assessee company from its investments were not taxable and since the assessee company had not made any disallowance on its own towards the expenditure incurred for maintaining such investments, the Ld.AO invoked the provisions of Section 14A of the Act and Rule 8D of the Rules by rejecting the following submission of the Ld.AR:- 1. The fact is that the assessee incurs routine expenditure to maintain its establishment and towards administration, a portion of which can be attributable to the activity of earning dividend. The managerial staff and the Directors of the assessee company are involved in the decision making process on investments made; the assessee claims the managerial remuneration in whole as an expenditure. Therefore, a portion of the expenditure of the assessee could be attributable towards the dividend earned by the assessee which is to be exempt u/s.10. 2. The ass....
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....y this bench of the Tribunal on the earlier occasion in the case of Lakshmi Electrical Drives Ltd in ITA No.3114/Mds/2016 vide order dated 23.03.2017 has held as follows:- "The assessee had invested Rs. 18.01 crores which would yield exempt income. Therefore the Ld. AO invoked the provisions of Section 14A and Rule 8D of the Rules and made addition which was subsequently confirmed by the Ld. CIT(A). At the outset, the Ld. AR submitted before us that, the entire investments, for strategically reasons, was made in subsidiary companies and it was sourced from interest free funds. The Ld. AR further argued that on several occasions, the Chennai bench of the Tribunal has held that if such investments are made in sister /subsidiary companies, the provisions of Section 14A cannot be invoked. He therefore pleaded that the addition made by invoking the provisions of Section 14A of the Act, may be deleted. The Ld. DR though opposed to the submission of the Ld. AR could not successfully controvert to the submissions. After hearing both sides, we find merit in the arguments of the Ld. AR. On several instance this bench of the Tribunal has held as what was argued by the Ld. AR. For instance ....
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.... assessee had utilized interest free funds for making fresh investments and that too into its subsidiaries, which was not for the purpose of earning exempt income and which was for strategic purposes only, no disallowance of interest was required to be made under Rule 8D(i) & 8D(ii) and strategic investment has to be excluded for purpose of arriving at disallowance under Rule 8D(iii)." iii) M/s.JM Financial Ltd., Vs. ACIT reported in 2014-TIOL-202- ITAT-MUM held as follows: "...the department has not disputed this fact out of the total investment about 98% of the investment are in subsidiary companies of the assessee and, therefore, the purpose of investment is not for earning the dividend income but having control and business purpose and consideration. The assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies, therefore, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the Assessing Officer is not justified, accordingly the same is deleted." (iv) CIT Vs. Bharti Televenture Ltd. reported in (2011) 33....
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....e case EIH Associated Hotels Ltd v. DCIT reported in 2013 (9) TMI 604 in ITA No.1503, 1624/Mds/2012 dated 17th July, 2013, it has been held by the Chennai Bench of the Tribunal as follows:- "Disallowance U/s. 14A rw Rule 8D - CIT upheld disallowance - Held that - investments made by the assessee in the subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. A perusal of the order of the CIT(Appeals) shows that out of total investment of Rs. 64,18,19,775/-, Rs. 63,31,25,715/- is invested in wholly owned subsidiary. This fact supports the case of the assessee that the assessee is not into the business of investment and the investments made by the assessee are on account of business expediency. Any dividend earned by the assessee from investment in subsidiary company is purely incidental. Therefore, the investments made by the assessee in its subsidiary are not to be reckoned for disallowance U/s. 14A r.w.r. 8D. The Assessing Officer is directed to re-compute the average value of investment under the provisions of Rule 8D after deleting in....
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....ssessment proceedings, it was observed that the assessee had earned interest amounting to Rs. 2,34,24,327/- as detailed herein below:- SPL Relators Private Limited Rs.1,15,50,001/- Bengal Shriram Hitech City Private Limited Rs.1,16,04,506/- Bank Interest Rs. 2,69,820/- Total Rs.2,34,24,327 The assessee treated the aforesaid interest income as business income by relying on the decision of the Hon'ble Kolkata High Court in the case Eveready Industries Ltd vs.CIT reported in 323 ITR 312. However, the Ld.AO by relying on the decision of the Hon'ble Apex court in the case Tuticorin Alkaline Chemicals & Fertilizers Ltd vs. CIT reported in 93 taxman 502 and the decision of the Hon'ble Kerala High Court in the case CIT vs. Vaikundam Rubber Company Pvt. Ltd. reported in 131 taxman 61 held that the interest income has to be assessed under the head 'Income from other sources' as per the provisions of Section 54 of the Act. 6.1 On appeal the Ld.CIT(A) accepted the claim of the assessee and held that the interest income earned by the assessee has to be assessed under the head 'Income from business' by observing as under: "As regards the interest received from SPL Rea....