TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 27
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....nt as 'interest payment and finance charges' against borrowed money claimed to be utilized for the purpose of business. At the same time, the investments as stated in the balance sheet were valued at Rs. 97,44,50,000/- as on 31.03.2009 as compared to the investments as on 01.04.2008 at Rs. 80,72,10,000/-. The AO worked out the disallowance u/s 14A r.w. Rule 8D and made a disallowance of Rs. 3,69,33,354/-. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The assessee submitted before him that the company had sufficient interest-free funds available and hence no part of interest could be attributed to investment in shares. Also it was stated before the Ld. CIT(A) that "the assessee has not received any dividend or exempt income from these investments in any of the years including the current assessment year. The same is evident from the profit & loss account of the assessee". Reliance was placed by the assessee on the decision of the Hon'ble Bombay High Court in Delite Enterprises in ITA No. 110 of 209 dated 26.12.2009. However, the Ld. CIT(A) was not convinced with the above submission of the assessee and confirmed the disallowance of Rs. ....
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.... 16.75 22.23 117.52 Share Capital and Reverses & Surplus (Opening Balance) 296.70 244.83 308.89 The Ld. counsel further submits that the assessee-company has not received any dividend or exempt income from these investments in any of the aforementioned assessment years. Therefore, no disallowance u/s 14A r.w. Rule 8D is called for. Reliance is placed by her on the decision in Delite Enterprises (supra). 10. Per contra the Ld. DR supports the order passed by the Ld. CIT(A). It is submitted by him that the assessee could not directly link the investment appearing the balance sheet and made during the year to the sources of funds said to be generated from the business operation. Also it is stated by him that the assessee could not file fund flow statement before the AO and the investment was made out of a single bank account on which the assessee had availed cash credit/overdraft facilities. 11. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. We find that in the AY 2009-10, the share capital and reserves and surplus (opening balance) is Rs. ....
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.... any dividend or exempt income from the investments is evident from the profit and loss account filed by it for the above assessment years. The issue whether disallowance u/s 14A r.w. Rule 8D can be made in a case when there is no exempt income is no longer res integra. In the case of CIT v. Shivam Motors (P) Ltd. (2015) 55 taxmann.com 262 (All), it has been held that in absence of any tax free income earned by the assessee, disallowance u/s 14A could not be made. In a similar vein, it has been held in Cheminvest Ltd. v. CIT (2015) 61 taxmann.com 118 (Del) that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 11.2 The basis on which the Ld. CIT(A) confirmed the disallowance made by the AO u/s 14A r.w. Rule 8D is the order of his predecessor-in-office for the AY 2008-09. We find that the ITAT 'E' Bench Mumbai for the said assessment year (ITA No. 2189/Mum/2012) has allowed the appeal filed by the assessee on the above issue with the following reasons: "We find that assessee had not claimed any deduction in respect of exempt income nor has it claimed any expenditure against the income which does not form part of the total....
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....e assessee-company had advanced loan to its subsidiary M/s Gateway Multichannel Retail (India) Ltd. but had not offered any interest income on the same during the year. In response to a query raised by the AO, the assessee submitted that the Board of Directors of the subsidiary company had, in January 2009, decided to discontinue its catalogue retailing operations and in view of the same, the assessee had to discontinue the interest accrual from 01.01.2009 onwards. It also submitted that there was no question of charging interest on loan to the subsidiary, where it was impossible to get back any portion of the principal amount of loan and that no prudent businessman would charge interest when the borrower was insolvent or the loan had become sticky on non-performing asset. The assessee also contended that borrowed funds had not been utilized for advancing the loan. It was further contended by the assessee before the AO that hypothetical income, even if accrued as per mercantile system of accounting, could not be brought to tax and that since the loan to the subsidiary had become irrecoverable, any accrual of interest post 01.01.2009 could not be considered as real income. However,....
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.... was Rs. 244.83 crores. We observe that as per section 36(1)(iii), the amount of interest paid in respect of capital borrowed for the purpose of business or profession is allowed as deduction. As per the Hon'ble Supreme Court in case of Madhav Prasad Jatia v. CIT (1979) 118 ITR 200 (SC), for claiming deductions under this sub-clause, the basic requirements are: (A) The money i.e. (capital) must have been borrowed by the assessee; (B) It must have been borrowed by the assessee for his business, profession or vocation; and (C) the assessee must have paid interest on the amount and claimed it as an allowance. 20.1 In the case of Reliance Utilities & Power Ltd. (supra), the Hon'ble Bombay High Court held: "10. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd. (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (supra) where a similar issue had arisen. Before the Supreme Court....