TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 1340
X X X X Extracts X X X X
X X X X Extracts X X X X
....ime of hearing of appeal. 3. The appellant prays that the order of CIT(A) on the above ground be setaside and that of the assessing officer be restored" 2. Briefly stated, the facts of the case are that the assessee which is a non banking finance company carrying on the business of providing financial products and services to its customers engaged in development of infrastructure in power, roads, telecommunication, oil and gas and ports sector in India had e-filed its return of income for A.Y. 2011-12 on 28.09.2011, declaring total income of Rs. 231,33,25,226/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2). 3. During the course of the assessment proceedings the A.O observed that dividend income of Rs. 4,08,55,890/- was claimed by the assessee company as exempt. The A.O noticed that the assessee had in its return of income disallowed a sum of Rs. 81,25,709/- under Sec. 14A of the Act. However, the A.O being of the view that the disallowance worked out by the assessee was not as per the Rule 8D of the Income Tax Rules, 1962, therefore, cal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the first day and the last day of the previous year i.e. 5867,92,21,705 (iii) An amount equal to one-half percent of the average of the 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 the first day and last day of the previous year. Hench, 0.5% of Rs. 187,49,99,414/- = Rs. 93,74,997/- in the result, the total disallowance u/s 14A works out as under : Disallowance u/s. 14A = Rs. Nil + Rs. 12,14,76,213/- + Rs. 93,74,997/- = Rs. 13,08,51,210/-." The A.O after taking cognizance of the fact that the assessee had by itself disallowed a sum of Rs. 81,25,709/-, therefore, made an addition/disallowance of Rs. 12,27,25,501/- [i.e. Rs. 13,08,51,210/- (-) Rs. 81,25,709/-] in the hands of the assessee. The A.O further while computing the MAT liability of the assessee as per Sec. 115JB(f) added the said amount to the 'book profit' of the assessee. 5. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) observed that the A.O while re-computing the disallowance under Sec. 14A had made a disallowance of Rs. 12,14,76,213/- under Rule 8D(2)(ii) for the inter....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the term loans could not be given by the banks to the company for investment activities, therefore, the question of utilizing the term loans for making of investments by the assessee in the exempt income yielding investments in shares was clearly ruled out. It was further submitted by the assessee that as the funds which were raised through issue of Non Convertible Debentures (for short NCD's) were utilized for providing infrastructure loans only, therefore, no inference as regards utilizing of any part of the said funds for making of investment in exempt income yielding shares could also be inferred. The assessee in order to fortify its claim that no part of the interest expenditure was liable to be disallowed under Rule 8D(2)(ii), submitted that following the same methodology the assessee had not offered any disallowance in respect of interest expenditure under Sec. 14A r.w. Rule 8D(2)(ii) in its case for A.Y. 2009-10, which was accepted by the CIT(A) vide its order dated 09.11.2012. 6. That as regards the disallowance made by the A.O under Sec. 14A r.w. Rule 8D(2)(iii), it was submitted by the assessee that it had while working out the disallowance @ 0.5% of the average invest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resaid observations deleted the disallowance of interest expenditure of Rs. 12,14,76,213/- made by the A.O. 8. That as regards the disallowance of administrative expenses i.e. @ 0.5 % of average investment made by the A.O under Sec. 14A r.w. Rule 8D(2)(iii), the CIT(A) taking cognizance of the fact that the interest income received from the investments made by the assessee in the Compulsorily Convertible Debentures of Tikona Digital Networks Pvt. Ltd. of Rs. 49,97,15,040/- as on 31.03.2011 was taxable, therefore, the same were liable to be excluded for working out the disallowance under Sec. 14A r.w. Rule 8D(2)(iii). The CIT(A) on the basis of his aforesaid observations directed the A.O to rework the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) @ 0.5% of average investment after excluding the Compulsorily Convertible Debentures of Tikona Digital Networks Pvt. Ltd. of Rs. 49,97,15,040/-. 9. The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. We find that despite the fact that the assessee respondent was put to notice as regards the hearing of the appeal, however, neither any appearance had been put forth on its behalf, nor any a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ointed out that the Assessee had borrowed Rs. 43.62 crores by way of issue of debentures and the said amount was utilised as capital expenditure and inter-corporate deposit. It was the Assessee's submission that no part of the interest bearing funds (viz. Issue of debentures) had gone into making investments in the said two companies. It was pointed out that the income from the operations of the Assessee was Rs. 313.53 crores and with the availability of other interest free funds with the Assessee the amount available for investments out of its own funds were to the tune of Rs. 398.19 crores. In view thereof, it was submitted that from the analysis of the balance-sheet, the Assessee had enough interest free funds at its disposal for making the investments. The CIT (Appeals) on examining the said material, agreed with the contention of the Assessee and accordingly deleted the addition made by the Assessing Officer and directed him to allow the same under the provisions of the Income Tax Act, 1961. The Revenue being aggrieved by the order preferred an Appeal before the ITAT who upheld the order of the CIT (Appeals) and dismissed the Appeal of the Revenue. From the order of the IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se is that the Assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities. This factual position is not one that is disputed. In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd. (supra), it would have to be presumed that the investment made by the Assessee would be out of the interest-free funds available with the Assessee. We therefore, are unable to agree with the submission of Mr Suresh Kumar that the Tribunal had erred in dismissing the Appeal of the Revenue on this ground. We do not find that question (A) gives rise to any substantial question of law and is therefore rejected." , the CIT(A) had rightly concluded that no disallowance of the interest expenditure was called for in the hands of the assessee under Sec. 14A r.w. Rule 8D(2)(ii). We thus finding no infirmity in the order of the CIT(A), who had on the basis of his aforesaid observations deleted the disallowance of interes....