TaxTMI 
TaxTMI 
2017 (8) TMI 1058
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.... loss of Rs. 1,67,14,148/- on 30.9.2012. The case of the Assessee was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred the Act). Subsequently, the case was taken up in scrutiny and notice u/s. 143(2) of the Act was issued on 12.8.2013 and served upon the assessee. Thereafter, notices u/s. 142(1) of the Act alongwith questionnaire was issued and duly served upon the assessee wherein certain specific details were called for. The Company is engaged in the business of manufacturing, marketing of IMFK, Country Liquor and trading in Vanaspati and Edible Oil. The Edible oil segment comprises of trading in Vansapati, Refined oils and Crude Edible oils. The liquor segment comprises of bottling, manufacturing and trading of IMFL and country liquor at its unit at Sansarpur Terrace, Distt. Kangra (Himachal Pradesh) and whole sale vends in the State of Himachal Pradesh. The AO completed the assessment at Rs. 41,69,034/- u/s. 143(3) of the Act vide order dated 2.3.2015 and made the various additions. Against the assessment order, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 25.11.2016 has partly allowed the appeal by giving part relief to ....
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....d in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act, it also places a duty on the AO to determine the amount of such expenditure incurred, in accordance with the prescribed method (Rule 8D), satisfaction of the AO regarding the assessee's claim of expenditure or NIL expenditure. Further, the issue stands fairly settled (albeit the Revenue's SLP has been admitted by the Apex Court) in view of the plethora of judicial pronouncements as under:- - disallowance of expenses related to tax exempt income - satisfaction of AO, regarding claim of expenditure / nil expenditure disallowed by assessee from its books of accounts, compulsory - disallowance u/s 14A not automatic, AO to show nexus between tax exempt income and related expenditure - earning of tax exempt income necessary for determining disallowance u/s 14A - disallowance restricted to the quantum of tax exempt income received - only net interest expenses on boncwea funds to be considered for disallowance u/s 14A 5.2 In the impugned order it is mentioned, inter alia,...., "The comp....
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....at the assessee did not make any claim for exemption in such a situation under section 14a could have no application. The appellant has also relied the decision of CIT Vs Shivam Motors judgement dated 05/05/2014 of Hon'ble Allahabad High Court where it was held the "in the absence of any interest free income, there cannot be any disallowance as no corresponding expenditures were incurred to earn a particular tax free income" in above circumstances and in view of the above decisions that assessee has not claimed exempt income. So, no disallowance can be made. Therefore, the addition made by the AO is hereby deleted." Accordingly, in view of the extant law on the subject, presently settled by judicial precedents from the courts including the jurisdictional High Court (Delhi HC) - * Maxopp Investment Ltd V CIT (A Y 2002-03) ITA no. 68712009 (Del HC) * Cheminvest Ltd. CIT (AY 2004-05) (2015) 61 taxmann.com 118 (Del HC) * Commissioner of Income Tax-IV vs Holcim India Pvt. Ltd., ITA No. 48612014 and 29912014 * CITv Taikisha Engineering India Limited ITA 115/2014 & 119/2014 dated 25/11/2014 (Del) * DCM Ltd. v DCIT, Circle 10 (1) New Delhi a....
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....vant previous year, as gathered from the copies of the audited accounts available. Obviously no exercise to prove the nexus between diversion of funds giving interest free advances (to sister concerns) appears to have been done before arriving at such a conclusion. It is important at this juncture to mention that the appellant's objection mentions, inter alia, "With respect to both of the above decisions relied upon by the learned AO, the admitted facts were that the borrowed funds were used for acquiring the controlling interest of making investment. However, in the present case, no such finding has been recorded by the learned AO that borrowed funds were used by the assessee in acquiring the controlling interest or making investment. It is submitted that such diversion of funds could only be ascertained in the year when the investment was originally made. As per records, the investments were made over a period from January 2005 to December 2007. The assessee was assessed uls 143(3) during 2007-08 & 2009-10. In none of these assessments, such finding or allegation of diversion of funds was made. Thus learned AO was arbitrary in the present case without recording facts and find....
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..... Thus, while Section 14A of the IT Act stipulates that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act, it also places a duty on the AO to determine the amount of such expenditure incurred, in accordance with the prescribed method (Rule 8D), satisfaction of the AO regarding the assessee's claim of expenditure or NIL expenditure. Further, the issue stands fairly settled (albeit the Revenue's SLP has been admitted by the Apex Court) in view of the plethora of judicial pronouncements as under:- - disallowance of expenses related to tax exempt income - satisfaction of Ad, regarding claim of expenditure / nil expenditure disallowed by assessee from its books of accounts, compulsory - disallowance u/s 14A not automatic, AO to show nexus between tax exempt income and related expenditure - earning of tax exempt income necessary for determining disallowance u/s 14A - disallowance restricted to the quantum of tax exempt income received - only net interest expenses on boncwea funds to be considered for disallowance u/....
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....jarat) that the assessee did not make any claim for exemption in such a situation under section 14a could have no application. The appellant has also relied the decision of CIT Vs Shivam Motors judgement dated 05/05/2014 of Hon'ble Allahabad High Court where it was held the "in the absence of any interest free income, there cannot be any disallowance as no corresponding expenditures were incurred to earn a particular tax free income" in above circumstances and in view of the above decisions that assessee has not claimed exempt income. So, no disallowance can be made. Therefore, the addition made by the AO was rightly deleted by the Ld. CIT(A) in view of the extant law on the subject, presently settled by judicial precedents from the courts including the jurisdictional High Court (Delhi HC) as under- * Maxopp Investment Ltd V CIT (A Y 2002-03) ITA no. 68712009 (Del HC) * Cheminvest Ltd. CIT (AY 2004-05) (2015) 61 taxmann.com 118 (Del HC) * Commissioner of Income Tax-IV vs Holcim India Pvt. Ltd., ITA No. 48612014 and 29912014 * CIT v Taikisha Engineering India Limited ITA 115/2014 & 119/2014 dated 25/11/2014 (Del) * DCM Ltd. v DCIT, Ci....
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.... as to how the AO came to conclude that borrowed funds were utilized when the advance was made during the period between 2005 and 2007 and certainly not in the relevant previous year, as gathered from the copies of the audited accounts available. Obviously no exercise to prove the nexus between diversion of funds giving interest free advances (to sister concerns) appears to have been done before arriving at such a conclusion. It is important at this juncture to mention that the appellant's objection mentions, inter alia, "With respect to both of the above decisions relied upon by the learned AO, the admitted facts were that the borrowed funds were used for acquiring the controlling interest of making investment. However, in the present case, no such finding has been recorded by the learned AO that borrowed funds were used by the assessee in acquiring the controlling interest or making investment. It is submitted that such diversion of funds could only be ascertained in the year when the investment was originally made. As per records, the investments were made over a period from January 2005 to December 2007. The assessee was assessed uls 143(3) during 2007- 08 & 2009-10. In non....