TaxTMI 
TaxTMI 
2017 (12) TMI 360
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....the Income Tax Act, 1961 (the Act) as computed by applying formulae given in Rule 8D(2)(iii) of the Income tax Rules, 1962 (the Rules). 1.1. That the CIT(A) erred on facts and in law in not restricting the disallowance u/s 14A to the amount of Rs. 55,76,775/-, suo motu disallowed by the appellant in the return of income. 1.2. That the CIT(A) failed to appreciate that in the absence of 'satisfaction' being recorded by the AO u/s 14A(2) of the Act, Rule 8D of the Rules had no application. 1.3. That the CIT(A) erred on facts and in holding that 'satisfaction' in terms of 14A(2) of the Act could also be recorded by the CIT(A). 1.4. That the CIT(A) erred on facts and in holding that the basis/formula adopted by the appellant for making disallowance out of administrative expenses was not reasonable/scientific. 2. That the CIT(A) erred on facts and in law in confirming levy of interest u/s 234B and 234D of the Act. The respondent craves leave to add, amend, alter or vary from the above grounds at or before the time of hearing." 2. Brief facts of the case are as under: Assessee filed its return of income on 22/09/11 declaring a total income of Rs. 2,56,26,013/-which wa....
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.... of financing and there was not a single amount of interest bearing borrowings which could be related to the investment which yielded tax free dividend income. 4.1. It has been further observed by Ld. CIT (A) that similar issue had arisen for assessment year 2006-07 when Rule 8D was not in existence but no such attributability of interest expenditure relating to tax-free dividend income was found by an order passed by this Tribunal. Further Ld. CIT (A) also observed that for assessment year 2009-10 in assessee's own case, no such finding was given by assessing officer although Rule 8D was applied by him. The Ld. CIT (A) while deleting the addition for the year under consideration, placed reliance on his own order for assessment year 2010-11 in assessee's own case, where no disallowance under rule 8D (2) (ii) was called for. 4.2. The Ld.CIT(A) however confirmed addition amounting to Rs. 61,73,967/-made by Ld.AO under rule 8D (2) (iii) of the Act. 4.3. Aggrieved by the order of Ld. CIT (A) both revenue as well as assessee are in cross appeals before us. 4.4. We shall first deal with appeal filed by Revenue. 5. Ld. DR places reliance upon the assessment order in support of his ar....
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....dings for immediately preceding assessment year, were wholly utilised for granting inter corporate loans or for repayment of existing loans. The additional borrowings of Rs. 45 crores apx. were also, it is respectfully submitted, utilised in the relevant Assessment Year for granting inter corporate loans or for repayment of existing loans only and therefore, the same had no nexus with the investments held by appellant during the relevant assessment year. The one to one nexus of such additional borrowings with inter corporate loans granted or repaid during the relevant Assessment Year is demonstrated as under. The composition of the amount of borrowings at the beginning of the relevant assessment year amounting to Rs. 60.15 crores is as under. Name of the party from whom loan taken Amount of loan (Rs. In crores) Rate of interest Aditya Birla Finance Ltd. 15 9% L&T Finance Ltd. 20 12% Bajaj Auto Finance Ltd. 10 12.25% Tata Capital Ltd. 15 9.5% Total 60 The composition of the amount of borrowings at the end of the relevant assessment year amounting to Rs. 105.42 crores is as under. Name of the party from whom loan taken Amount ....
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.... 7.2. Assessee has demonstrated at page 49 the details of secured loans taken during the year under consideration and its utilisation which is as under.: Details of secured loans taken during the year and its application Sl. No. Secured loan taken from Amount -Rs. Application of secured loan (in repayment of secured loans and loans and advances given) Amount - Rs. 1. Morgan Stanley India Capital Pvt.Ltd. 2000 Aditya Birla Finance Ltd. (repayment) SCM Investment & Trading Co.Ltd. 1500 500 2. Tata Capital Ltd. 2000 RTM Investment & Trading Co.Ltd. The Oudh Sugar Mills Ltd. Sutlej Textiles and Industries Ltd. Funds remain with us for payment of interest etc. 500 900 550 50 3. L&T Finance Ltd. 2000 RTM Investment & Trading Co.Ltd. 2000 Total: 6000 Total: 6000 7.3. A joint reading of the above table along with the details of loan taken/repaid during the year at page 48 proves to explain that not a single amount of interest-bearing borrowings could be related to investments which yielded tax free dividend income for the year under consideration. 7.4. In the preceding assessment year the Ld. CIT (A) as well as this Tribunal for assessment ye....
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....the issue as under. 8.7. Keeping these financial results in mind, now, the AO's computation of disallowance u/s 14A is analysed, as under. (a) The AO has observed that there are no directly attributable expenses in respect of tax free dividend income. The appellant has also reiterated the same. Therefore, as far as disallowance u/s 14A of the Act read with Rule 8D(2)(i) of the I.T.Rules is concerned, the same has been rightfully accepted as NIL. (b) There has been a difference of opinion regarding the attributability of interest expenses in respect of tax free dividend income. This is the main bone of contention of the appellant company. The AO has attributed interest amounting to Rs. 10,61,78,431/- (entire interest expenses debited in P&L Account) as relatable to tax free dividend income of Rs. 7.01 crores shown by the appellant, and following the Rule 8D(2)(ii) the disallowance has been computed at Rs. 6,83,66,201/-. On the other hand, the appellant very elaborately has given the complete details of its interest income and payment of interest as debited in the profit and loss account. The appellant has established that the activity of financing from which major portion o....