TaxTMI 
TaxTMI 
2018 (1) TMI 76
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.... 14A of the Income Tax Act read with Rule 8D. The sustaining of disallowance of Rs. 4,32,847/- is without any basis and on the facts and in the circumstances the entire disallowance made by the assessing officer should be deleted. 2. That the consistent case of the appellant since beginning is that no borrowed funds have been used for acquiring any investment in shares and all the investments have been acquired out of own funds and also that no expenditure has been incurred for earning any dividend income or any other exempt income not includible in the total income and therefore the question of any disallowance u/s 14A does not arise. 3. That the assessing officer erred in straightway proceeding to apply Rule 8D as if the disallowance under Rule 8D is automatic. either any interest nor any other expenditure has been incurred by appellant in relation to the exempt income and the assessing officer erred in assuming otherwise. 4. That there is no proximate relationship/nexus between the expenditure disallowed and the exempt income justifying any disallowance u/s 14A read with Rule 8D and the entire disallowance sustained by the Commissioner of Income Tax (A....
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.... (ii) In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :- A X B/C = 75,34,709 X 7,10,33,364/ 16,06,38,299 = Rs. 33,31,806/- A = Rs. 75,34,709/- (in his case, total interest on loan paid Rs. 92,17,120/- - interest received on loan & advance being NBFC of Rs. 31,12,422/-) = amount of expenditure by Way of interest incurred during the previous year but not separable; B= Rs. 7,10,33,364/- - (Opening Value of Investment Rs. 7,17,70,153/- and Closing value of Investment Rs. 7,02,96,574/- in this case) = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on first day and last day of the previous year. C= Rs. 16,06,38,299/- (Opening Value of Assets Rs. 15,79,85,669/- and Closing value of Assets Rs. 16,32,90,929/- in this case) = the average of total assets as appearing in the balance sheet of the assessee, on the first day and last day of the previous year. ....
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....ould be worked out by taking only the investments which yielded tax free exempt income and not the entire investments. The details of the investments which yielded tax free dividend income was given by the assessee as follows :- 8. On the above submission the CIT(A) was of the view that the same is not acceptable and he therefore upheld the disallowance made by the AO. 9. Thus the disallowance made by the AO was restricted to the following sum by CIT(A) :- "2.7. As regards the amount of interest to be disallowed for the purpose of Rule 8D(2)(ii) I restrict the same to the net interest expense being equal to the difference of Rs. 75,34,709/- and Rs. 74,60,295/-, being equal to Rs. 74,414/- . Thus, the total disallowance upheld by me as detailed above comes to Rs. 4,32,847/- (Rs.3,366 + 74,414 + 3,55,167/-." 10. Aggrieved by the relief granted by CIT(A) the revenue has raised ground no.1 in its appeal. Aggrieved by the order of CIT(A) in not deleting the disallowance of interest expenses in full and in not accepting the plea of the Assessee that while working the average value of the investments for the purpose of Rule 8D(2)(iii) of the Rules, only investments which....
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....e investment which yielded tax free income that should be considered for working out the average value of investment while applying the Rule 8D(2)(iii) of the Rules. This order of the tribunal has been confirmed by the decision of Hon'ble Calcutta High Court in G.A. No.3022 of 2013 Judgement dated 23.12.2013. In view of the aforesaid legal position we are of the view that the order of the CIT(A) on this issue cannot be sustained. It has also been held by the Hon'ble Delhi High Court in the case of Cheminvest Ltd vs CIT (2015) 378 ITR 33 (Del) that when there is no exempt income then there can be no question of disallowance u/s 14A of the Act. In the light of the judicial pronouncements, we are of the view that the plea of the assessee to exclude investments which had not yielded any exempt dividend income during the previous year while working out the average value of investments for the purpose of applying Rule 8D(2)(iii) of the Rules, should be accepted. We hold and direct accordingly. 15. For the reasons given above we allow ground nos. 1 to 6 raised by the assessee in part and dismiss ground no.1 raised by the revenue. 16. The next issue that arises for consideration in thes....
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....sessee had taken a loan of Rs. 94,79,346/- from a company TCI Bhoruka Projects Limited. The assessee also took a loan of Rs. 10,21,302/- from a company by name Transcorp Enterprises Ltd. It is not in dispute that the assessee held 41.33% of shares in Transcorp Enterprises Ltd and 12.75% in TCI Bhoruka Projects Ltd. In terms of section 2(22)(e) of the Act any loan or advance from a company by which the assessee is a beneficial shareholder, holding not less than 10% of the voting power of the lending company, such loan or advance has to be construed as dividend and taxed in the hands of the assessee i.e. recipient of the loan or advance, to the extent the lending company possesses accumulated profits. The AO held that the loan received from the aforesaid two companies are to be construed as deemed dividend and accordingly brought the same to tax as deemed dividend. 18. On appeal by the assessee the CIT(A) reduced the quantum of deemed dividend in respect of loan from TCI Bhoruka Projects Ltd of Rs. 12,08,616/- (to the extent of accumulated profits of TCI Bhoruka Projects Ltd.) and deleted the addition made on account of deemed dividend in respect of loans from Transcorp Enterprise....
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....nge which is a recognised stock exchange. Though trading in shares of the assessee company remains suspended for non payment of fees to the stock exchange, the fact remains that the assesee's shares have not been delisted in Calcutta Stock Exchange. In these circumstances it has been construed that TCI Borukha Projects Ltd is a company in which public or substantially interested and therefore the payment of loan or advance by TCI Borukha Projects Ltd., even to a beneficiary shareholder having not less than 10% of the voting power is outside the provision of section 2(22)(e) of the Act. Therefore we hold that no part of the loan given by TCI Boruka Projects Ltd., can be taxed as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee. 23. As far as loans or advance by Transcorp Enterprises Ltd is concerned it is clear from page 119 of the paper book Vol.I which we have extracted in the earlier part of this order that substantial part of the business of this company is lending of money. It is not disputed that the lending of money to the assessee is in the ordinary course of the business of Transcorp Enterprises Ltd. In such circumstances no part of the advance or loa....
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....on which dividend received Aditya Birla Nuvo Ltd 250 5000 600 Gati Ltd Gujarat state Petronet Ltd HDFC Bank Itd Hindalco Industries Ltd Hindustan Unilever Ltd ICICI Bank Ltd IFCI Ltd Infosys Technologies Ltd Larsen & Toubro Ltd Mangalore Refinery & Petrochemicals Ltd Naga Dhanseri Group Ltd. National Aluminium Company Ltd Nestle India Ltd Piramal Healthcare Ltd 2037 Procter & Gamble Hygiene & Healthcare Ltd 1850 Reliance Industries Ltd 562 State bank of Mysore 72 Sundaram Finance Ltd 2800 Tata Global Beverages Ltd (Tata Tea Ltd) 4000 TCI Developers Ltd Transcorp International Ltd - Transport Corporation of India Ltd Ultra Tech Cement Ltd Transcorp Fincap Ltd- (A) 5300 2600 1000 7000 2500 12900 3000 4500 200 1100 4000 1600 3200 500 1259 1551561 25190 1340 5000 62,189 249,837 4,400 9,500 240,878 14,400 838,772 70,875 153,290 78,186 1,143,111 101,193 603,011 367,695 199,984 326,359 155,032 42,976 8,735 181,790 3,923 510,760 442,800 25,694 139,099 ....