AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 1581
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....ividend income earned by the company during the year under assessment; or B) Without prejudice to the above, the disallowance be restricted to Rs. 1,82,803/- in accordance with the provisions of section 14A read with Rule 8D by considering only the average value of investments in equity shares on which the company has received dividend income during the year under assessment and not the average value of investment in all equity shares held by the company as at the close of the year. C) That disallowance u/s 14A is to be calculated as per Rule 8D by excluding the value of strategic investments. That the appellant craves leave to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. 2. The facts in brief of the case are that the assessee was engaged in the business of financing, leasing and investment activities. The assessee filed return declaring loss of Rs. 5,51,91,000/- on 29/09/2008. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short 'the Act') was issued and complied with. The Assessing Officer noticed dividend income of Rs. 10,000/- claimed a....
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....d income even when huge investments were made to the extent of Rs. 74,99,18,000/- until 31.3.2008 and did not even offer for disallowance, an amount of Rs. 82,200/- which admittedly was incurred for earning income which did not form part of total income. There is nothing to suggest as to whether or not any cash flow statement or sources of the investment in the various funds by the assessee were placed before the AO or the Id, CIT(A) . Apparently, the assessee did not furnish any details of expenditure incurred for management and supervision of aforesaid huge investments even when the assessee itself stated that an expenditure of ?82,000/- was incurred for earning income which did not form part of total income. In any case, no material was placed before the AO in order to enable him to record his satisfaction while the Id.CIT(A) concluded that the AO was required to record his satisfaction on the claim of the assessee u/s 14A(2) of the Act, irrespective of the fact of filing of details or otherwise .There is no apparent basis nor there is any such provision, restricting the disallowance to dividend income received by the assessee during the year. Hon'ble Apex Court in Kantamani Ven....
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....t details/particulars and accounts while making the disallowance in terms of provisions of sec. 14A of the Act. There is nothing in the assessment order or impugned order as to whether the assessee placed the relevant details & accounts before the AO nor the Id. CIT(A) seems to have undertaken any exercise to ascertain the details of expenditure objectively in managing and supervising the aforesaid huge investments in various funds & securities. In view of the foregoing, we consider it fair and appropriate to set aside the order of the Id. CIT(A) and restore the matter to the file of the AO for deciding the issue, afresh in accordance with law in the light of our aforesaid observations and various judicial pronouncements, including those referred to above, after allowing sufficient opportunity to the assessee Needless to say that while redeciding the issue, the AO shall pass a speaking order, giving reasons for his satisfactionor otherwise, as pointed out by the Hon'ble jurisdictional High Court in their decision in Maxopp Investment Ltd (supra). The assessee is also directed to furnish all the relevant details of expenditure actually incurred in managing and supervising the afores....
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....d securities along with relevant accounts and cash flow statements in response to which a sketchy reply, as discussed in paras-3.2 and 3.3 above, was furnished. The appellant has contended that at the most disallowance u/s 14A can be made on investments on which income was earned during the year. However, it is pertinent that in the judgment of the Hon'ble ITAT in the case of Cheminvest Ltd. v/s ITO 317 ITR(AT)86, it was held that when the expenditure is incurred in relation to income which does not form part of total income, it has to suffer the disallowance irrespective of the fact whether any income is earned by the assessee or not and the provisions of Sec.l4A of the Act do not envisage any such exception. Therefore, it is irrelevant that the appellant received dividend income only to the extent of Rs. 10,000/- during the year and only on shares of M/s Hexaware Technologies Ltd. What is relevant is that it was maintaining investments in shares to the time of crores of Rupees which would earn dividend income for the appellant in the future, if not in the current year, and despite the direction of the Hon'ble ITAT it did not come forward to disclose the expenses incurred by it fo....
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....ment in shares etc should be limited to the only investments from which the assessee has received exempt income and not average value of all investments in equity shares etc. The relevant finding of the Tribunal is reproduced as under: "................................................... 11. We have considered the submissions of both the parties and have perused the record of the case. The basic issue for consideration is that the investment, which did not yield any exempt income, should enter or not enter into the computation under Rule 8D, while arriving at the average value of investment, income from which does not or shall not form part of the total income. 11.1 In the present case, our decision is restricted only to the extent of interpretation of language employed in Rule 8(2)(iii). The submission of Id. counsel for the assessee is that this issue is now covered by the decision of the Hon'ble Delhi High Court in the case of CIT v. Hofcin India (P) Ltd. (supra), wherein it has been held that if no dividend income was>earned, section 14A could not be invoked. The Hon'ble Delhi High Court has referred to the decisions, which we have noted earli....
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....by the Hon'ble Supreme Court in the case of Rajendra Prasad Moody (supra). 11.5 In the case of Rajendra Prasad Moody (supra), the facts were that the assessees were brothers and each of them had borrowed. moneys for the purposes of making investment in shares of certain companies. During the relevant assessment year they paid interest on the moneys borrowed but did not receive any dividend on the shares purchased with these moneys. Both of them made a claim for deduction of the amount of interest paid on borrowed moneys but this claim was negated by the ITO and on appeal by the AAC on the ground that during the relevant assessment year the shares did not yield any dividend and. therefore, interest paid on the borrowed moneys could not be regarded as expenditure laid out or expended wholly and exclusively for the purposes of making or earning income chargeable under the head 'income from other sources', so as to be allowable as a permissible deduction u/s 57(iii). The Tribunal. however, on further appeal, disagreed with the view taken by the taxing authorities and upheld the claim of each of the two assessees for deduction u/s 57(iii). 11.6 In the backd....
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....ts of Rs. 16,52,225/-. As against this, the respondent assessee had claimed administrative and miscellaneous expenditure written off amounting to Rs. 8.75 Crores. For the Assessment Year 2008-09, the assessee had filed return declaring loss of Rs. 6.60 Crores approximately. The assessee had declared revenue receipts in the form of foreign currency fluctuation difference gain of Rs. 12,46,595/-. It had claimed expenses amounting to Rs. 7.02 Crores as personal expenses, operating and other expenses, depreciation and financial expenses. 11.9 In both the assessment orders, the Assessing Officer held that the respondent-assessee had not commenced business activities as they had not undertaken any manufacturing activity or made downstream investments. It was observed that the respondent- assessee, after receiving approval of Foreign Investment Promotion Soard (FIPS) dated 20.12.2000 acquired shares capital of Ambuja Cement India Ltd. This, the Assessing Officer felt, was not sufficient to indicate or hold that the respondent-assessee had started their business. He, accordingly, disallowed the entire expenditure of Rs. 8.75 Crores for the Assessment Year 2007-08 and Rs. 7.02 Cror....
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..... Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondent-assessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A. 11.13 Thus, Hon'ble Delhi High Court primarily decided the issue regarding applicability of section 14A even if no dividend income was earned. The Hon'ble High court in paras 14 to 16 of its decision observed as under: 14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Inch, TTA No. 970/2008, decided on 02.04.2014, made reference to two ' earlier decisions of the same Court in CIT v. Hero Cycles Limited, [2010J323 ITR 518 and CIT vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold th....
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....red, it is subjected to dividend distribution tax. 16. what is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondentassessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A). 11.14 Now the position of law as stands is that the decision of Hon'ble Jurisdiction High Court is directly on the point in dispute whereas the decision of Hon'ble Supreme court in the case of Rajendra Prasad Moody (supra) has been rendered in the context of section 57(iii), the applicability of which has been ruled out by Hon'ble Delhi High Court in the case of Cheminvest (supra). 11.15 ....
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...."It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working; otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer," (ii) CIT v. Svnil Kumar (1995) 212 ITR 238 (Raj.), it was observed as under: "The point which has been raised could have been considered to be debatable because other High Courts have taken a different view. But since the view taken by this court is binding on the Tribunal and other authorities under the Act in this State, it could not be considered to be a debatable point in view of the decision of this court in the case of CIT v. M.....