TaxTMI 
TaxTMI 
2018 (3) TMI 40
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....ther and are disposed of by this common order for the sake of convenience. 2. The brief facts of the case are that the assessee company engaged in the business of investment in group companies for controlling interest. The assessee has filed return of income for the assessment year 2003-04 on 25.11.03 declaring total income at Rs. Nil under the normal provisions of the Act and book profit of Rs. 1,01,51,321/- under section 115JB of the Income Tax Act, 1961. The assessment was completed under section 143(3) on 24.03.06 determining total income at Rs. 5,35,87,040/-, after making additions on account of disallowance of miscellaneous and staff welfare expenses amounting to Rs. 91,453/- and finance charges amounting to Rs. 4,89,55,754/-. 3. The assessee has carried the matter in appeal before the first appellate authority. The Ld. CIT(A) vide his order dated 24.11.08 has partly allowed appeal filed by the assessee wherein he has given relief of Rs. 8,511/- towards miscellaneous and staff welfare expenses. However, confirmed additions made by the AO towards disallowance of finance charges amounting to Rs. 4,89,55,754/-. The assessee carried the matter in further appeal before the ITAT.....
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....me but it had incidentally flowed in the normal course of business and accordingly interest paid was deductable under section 36(1)(iii) of the Income Tax Act, 1961. The assessee also made an alternate submission in as much as dividend earned from shares is taxable under the head income from other sources, as such interest paid on borrowed funds needs to be allowed as a deduction under section 57(iii) of the Income Tax Act, 1961. 5. The AO after considering the relevant submissions of the assessee and also analysis of provisions of section 36(1)(iii) and 57(iii) of the Act, observed that on going through the Memorandum of Association and Articles of Association of the assessee company, it is seen that the main objects do not encompass any of the activities carried on as above. The assessee has carried out only activity during the year under consideration is investment in shares of Anand Group of Companies and such investments had been shown under the head "Investments". Even during the course of assessment proceedings, the assessee failed to explain as to how acquisition of shares for holding controlling interest in group companies was in the nature of business activity. 6. In so....
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....r the head "Finance charges" cannot be allowed under section 36(1)(iii) of the Act, as, the same has not been incurred wholly and exclusively for the purpose of business. The Ld. CIT(A), further, observed that on the basis of the statutory audit report read with Memorandum of Association and Articles of Association of the assessee company, it transpires from the records that the assessee has carried out only investment activity in shares of group companies. The assessee company has recorded such investments in shares under the head "Investments". The assessee also failed to explain as to how acquisition of shares for acquiring controlling interest in Anand Group of Companies was in the course of business activity. The Ld. CIT(A), further observed that in so far as alternate plea of the assessee in the light of the observation of ITAT that dividend income earned for the year under consideration is taxable, the corresponding expenditure incurred including interest needs to be allowed on proportionate basis considering the total dividend income earned by the assessee. The relevant portion of the order of the Ld. CIT(A) is extracted below: "5.1 I have carefully and dispassionately co....
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....o tax and is not exempt u/s.10(34) of the Act. This aspect has not been dealt with by the LAO in the set-aside assessment proceedings. In the course of appellate proceedings, it is seen that the appellant has not earned dividend and therefore, not disclosed any taxable income out of the following investments in shares:- Date Investment in shares No. of shares Amount (Rs.) 02.01.2001 Spicer India Ltd. 19,60,000 1,96,00,000 02.01.2001 Dytek India Ltd. 25,573 89,53,306 02.01.2001 Dytek India Ltd. 25,861 92,47,700 02.01.2001 Dytek India Ltd. 25,337 88,00,750 02.01.2001 Dytek India Ltd. 19,667 70,28,170 02.01.2001 Degramont India Ltd. 81,960 81,96,000 5.5 As on 31.03.2003, the appellant had an investment portfolio of Rs. 93.54 crores. During the F.Y. relevant to A.Y.2003-04, the appellant had admittedly not sold any investments. During the year (A.Y.2003-04), the appellant earned dividend income of Rs. 3,37,25,873/- which was offered to tax, as contended by the appellant before the ITAT. Admittedly, the appellant has not earned dividend on all investments. Having regard to the facts and circumstances, the LAO is directed to allow deduction u/s.57(iii)of ....
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....group companies for acquiring controlling interest cannot be formed part of business activity of the assessee. The AO further was of the opinion that the statutory auditors in their audit report categorically observed that the company is not engaged in carrying on any business or as a part of its business activity of acquisition of shares except making long term investments. The AO further was of a view that the Memorandum of Association and Articles of Association of the assessee company does not encompass any of the activities carried on by the assessee as per its main objects. It is the contention of the assessee that it has incurred finance charges wholly and exclusively for the purpose of business which is evident from the fact that its main business activity is investment in shares of Anand Group of Companies for acquiring controlling interest. The assessee further contended that its main objects clause in Memorandum of Association is only investment in shares of group companies. The assessee further contended that its investments in group companies are yielding dividend income and such dividend income is taxable under the Act, as such all expenses incurred for earning divide....
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....stments are not earned dividend income. The Ld. CIT(A), after considering relevant facts, has directed the AO to allow finance charges on proportionate basis in respect of investments which earned dividend income after verifying the facts. The Ld. CIT(A) has given factual finding, after considering the relevant facts of the case. We do not find any error or infirmity in the order of the Ld. CIT(A), hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject grounds raised by the Revenue as well as the assessee. 15. In the result, the appeal filed by the assessee in ITA No.7539/M/2013 and appeal filed by the Revenue in ITA No.62/M/2014 are dismissed. ITA No.4779/M/2014 16. This appeal filed by the assessee is arisen out of order of the Commissioner of Income Tax (Appeals)-4, Mumbai dated 04.06.2014, confirming penalty levied under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2003-04. The assessee has raised the following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not reversing the penalty order passed by the Assessing Officer (AO). 2. On the facts and in the circumstanc....
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.... reproduced by the Ld. CIT(A) in his order at paragraph 4.1 page Nos.4 to 23. The sum and substance of the arguments of the assessee before the Ld. CIT(A) was that, when the assessment has been set aside by the Tribunal, the penalty order passed by the AO cannot survive in the eyes of law as the addition on which penalty has been levied is set aside by the ITAT to the AO for fresh consideration. As regards merits of the case, the assessee submitted that there is no concealment of particulars of income or furnishing of inaccurate particulars of income as alleged by the AO, as the AO has made additions towards disallowance of interest on the ground that expenditure incurred by the assessee cannot be allowed under section 36(1)(iii) of the Act. The assessee further submits that only if there is a concealment, the necessity to determine the nature of the concealment shall arise, i.e. whether such concealment is willful or not, however, in case there is no concealment at all, the question of determining whether or not such concealment is willful does not arise, consequentially no penalty is leviable. In this regard, relied upon the decision of Hon'ble Supreme Court in the case of CIT v.....
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....ity before initiation of penalty under section 271(1)(c), however, ignored the fact that the assessee has preferred further appeal before the ITAT. The ITAT has set aside the appeal filed by the assessee to the AO, in so far as additions made by the AO towards disallowance of finance charges. The AO has levied penalty before the ITAT has passed its order. The ITAT has set aside the issue to the file of the AO and direct him to reconsider the issue in the light of the facts of the assessee's case that dividend income earned by the assessee is taxable under the head "Income from other sources" and this fact has not been considered by the lower authorities before disallowing interest expenses. Once the addition on which penalty has been levied is set aside to the AO for fresh consideration, it is as good as there is no addition for levy of penalty under section 271(1)(c) of the Act. If at all penalty can be levied, the AO shall take up penalty proceedings after receipt of order of the ITAT, modifying the assessment as per the directions of the ITAT. In this case, the AO has finalized penalty proceedings before the ITAT has set aside the issue to the file of the AO. The Ld. CIT(A) has ....