2018 (5) TMI 243

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....AO of the director of the appellant-company to examine the taxability of perquisite in his hand for being allowed possession/use of the appellant's property at rates lower than the market value despite existence of no such rule in the statute. Thus, the said direction should be ordered to be expunged. 3. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing. 2. Briefly stated facts of the case are that the assessee company was engaged in the business of generating wind energy in Madhya Pradesh, Karnataka, Rajasthan and Andhra Pradesh. Besides, the assessee was also engaged in realizing rental income from various commercial properties owned by it. For the year under consideration, the assessee filed return of income on 07/10/2010 declaring total income of Rs. 8,66,62,330/-. The case was selected for a scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short 'the Act') was issued in complied with. The assessment under section 143(3) of the Act was completed on 28/02/2013 after making certain additions/disallowances. On further appeal, the Ld. CIT(A) allowed part ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....lue of the asset 26562393.98   3.2 The above disallowance was further rectified by the Assessing Officer vide order under section 154 of the Act dated 07/08/2014 to Rs. 4,82,238/-as follows: (i) Expenditure directly attributable Nil (ii) Interest expense A*B/C Rs. 3,86,571/- (iii) 0.5 % of average investment Rs. 95,667/-   Disallowance expense Rs. 4,82,238/-       A Total interest Rs.5,36,66,400/-       B Opening value of investment Rs.1,89,83,137.27   Closing value of investment Rs. 1,92,83,850.31   Average value of investment Rs. 1,91,33,498.80 C Opening value of assets Rs. 2,15,37,69,752.39   Closing value of assets Rs. 3,15,87,09,045.45   Average value of assets Rs. 2.65,62,39.398.92   3.3 Thus, the Assessing Officer computed disallowance for proportionate interest expenses under rule 8D(2)(ii) at Rs. 3,86,571/- and disallowance for administrative expenses at t....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ring its business. Not only this, the appellant cannot exclude the value of its investment in shares of M/s. Gwalior Steel Pvt. Ltd. claiming that no dividend income was earned thereon. In the case of State Bank of Travancore 1124 ITD 332 2011 (KER)I- the assessee had made investments in tax free bonds for meeting SLR requirements and had borrowed funds for making such investments. The Hon'ble High Court held that even though the investment was made for meeting SLR requirements which was essential for the assessee's banking business, the interest and other expenditure incurred on borrowings for investment was disallowable u/s 14A. Similarly in Maxopp investment Ltd. 1203 taxman 185 (Del)] Sec. 14A disallowance was held to be applicable to the interest paid on the borrowings used for strategic investments, even though earning of dividend income was only incidental. In the following cases. Hon'ble Courts have held the view that disallowance u/s 14A would still need to be made even though no dividend income was earned during the year:- a) Cheminvest Ltd. [121 ITD 318 2009 (DEL)] b) Siva Industries & Holding Ltd. [TS-438-ITAT-2011 (CHNY) and TS-317- ITAT-2012 (CHN....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ich is directly related to exempt income, is computed. As per Rule 8D(2)(ii) any interest expenditure, which is not directly attributable to any particular income or receipt, is apportioned in the ratio of average value of investment in yielding exempt income to the average value of total assets appearing in balance sheet. As per Rule 8D(2)(iii), 0.5 % of the average value of investment yielding exempt income is computed. The aggregate amount of these three limbs is the amount of expenditure in relation to the exempt income or income not includable in total income, for the purpose of section 14A of the Act. 3.9 In the facts of the instance case, it is evident that the assessee itself has followed Rule 8D of Rules for computation of the disallowance against exempt income subject to following: 1. Investment in shares amounting to Rs. 69,30,000/- in shares of M/s Gwalior Steels Private Limited should not be considered for working out average value of investment for the purpose of rule 8D of Rules. 2. Proportionate disallowance of interest under Rule 8D(2)(iii) of Rules should not be made as the entire interest was for the purpose of business and no borrowed money ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....e and Stock Brokers P Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom. "The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. XXX XXX XXX The theory of apportinonment of expenditure between taxable and non-taxable has, in principle, has been now widened under Section 14A." 3.12 Respectfully, following the above judgment of the Hon'ble Supreme Court, we uphold the finding of the Ld. CIT(A) in considering the investment in shares of M/s Gwalior steels private limited for working out average value of investment required for rule 8D(2)(ii) and 8D(2)(iii) of the Rules. 4. The next issue is whether the interest amount of Rs. 5,36,66,400/- considered by the Assessing Officer for proportionate disallowance of Rs. 3,86,571/- under Rule 8D(2)(ii) was corresponding to money borrowed and utilized towards investment in shares. 4.1 We find that before the Ld.....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....the market value. The relevant finding of the Ld. CIT(A) is reproduced as under: "9.2 On consideration of the facts of the case and the legal position, I agree with the AR of the appellant that the annual value of a property cannot exceed the standard rent as per the rent control act. Hence, the addition to income made by the Assessing Officer on this account is directed to be deleted. This ground of appeal is allowed. However, the Assessing Officer of the director(s) to whom the property at Prithvi Raj Road was let out needs to examine the taxability of the perquisite arising to the director(s) on account of being allowed possession/use of the property at rates lower than the market value." 5.1 Before us, the Ld. counsel of the assessee submitted that it was beyond the power of the Ld. CIT(A) to issue such kind of direction for considering the addition in another case not before him for adjudication. 5.2 The Ld. DR, on the other hand, submitted that Ld. CIT(A) has not issued any direction under section 150(1) of the Act to the Assessing Officer and, therefore, there is no requirement to expunge the above observation made by the Ld. CIT(A). 5.3 We have heard the r....