TaxTMI 
TaxTMI 
2018 (12) TMI 984
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....he case, the Ld. CIT (A) has erred in law by deleting the addition of Rs. 2,00,000/- made by the AO on account of disallowance of various expenses without considering the fact that the assessee had failed to furnish proof to establish genuineness of various expenses in the light of the fact that certain expenses were made in cash and some vouchers were self prepared by the assessee". 3. Briefly stated the facts as culled out from the records are that the assessee is a limited company engaged in real estate and construction business. Income of Rs. 2,00,92,710/- disclosed in the e-return filed for Assessment Year 2012-13 on 30.9.2012. The return was further revised on 13.4.2014 declaring same income at Rs. 2,00,92,710/-. Case picked up for scrutiny and statutory notices u/s 143(2) and 142(1) was duly served upon the assessee along with questionnaire. Learned Assessing Officer (In short 'Ld. A.O) observed that considerable amount has been invested by the assessee in the group companies and though no exempt income has been earned but still deduction u/s 14A of the Act is called for, as the interest bearing funds have been applied towards interest free loans and advances and in....
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.... as well as various judgments which are mentioned in the forthcoming paragraphs submitted that no dividend income was earned during the year and only the funds out of the share capital and the accumulated reserve in surplus were applied for investing in the group companies. He also submitted that there is no satisfaction of the Ld. A.O on record to indicate about the nexus of interest bearing funds being applied for investment in the group companies. The written submission filed by the assessee reads as follows; "1. The Respondent Company is a closely held limited company incorporated in India, deriving income from real estate business, construction and letting of immovable properties on rent. It is the flagship company of the group owned and operated by Shri Sanjay Choudhary styled as Brilliant Group. 2. The Respondent company filed its Return of Income ('ROI') initially for AY 2012-13 u/s 139(1) on 30 September 2012 vide acknowledgement no. 505873361300912 declaring a total income of Rs. 2,00,92,710/- under normal provisions and Rs. 5,61,10,685/- as book profits u/s 115JB. The Respondent further revised its ROl on 13 March 2014 vide acknowledgment no. 12....
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.... of Rs. 33,42,56,695/- totaling to Rs. 39,29,44,695/. In addition the Respondent has a deferred tax liability reserve of Rs. 4,49,42,853/ -. Thus the total share capital and reserves i.e' net owned funds' amounted to Rs. 43,77,87,548/-. 5.7 The Respondent company explained that the sale of shares of private/unlisted group companies are subject to capital gain tax upon their liquidation and will never yield any tax free income. The investments held by the Respondent in its group companies have neither earned any exempt income in the past nor there is any probability of fetching any tax free income in the future. Such investments were purely out of commercial and business expediency to promote the business of \such group companies. The Respondent company is also not required to monitor these investments on day to day basis and therefore no expenses were incurred in relation to this activity. 5.8 The Learned AO without appreciating the facts of the case, particularly that the respondent company has not earned any exempt income in respect of its these investments made in unlisted closely held companies, nor is there any possibility of earning such income, cons....
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....curred by the Respondent. In other words, provisions of sub-section (2) to section 14A of the Act does not authorize or empower the Assessing Officer to apply the prescribed method irrespective of the claim made by the Assessee. The Assessing Officer has to first consider the correctness of the claim of the Assessee having regard to the accounts of the Assessee. The satisfaction of the Assessing Officer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The Assessing Officer has not established the proximity between fund utilized and investment made. 5.18 Lack of recording of dissatisfaction: There is no dissatisfaction, or even a whisper of dissatisfaction, as envisaged u/s 14A and which is a sine qua non for invoking these provisions. This being a charging section, strict interpretation is a legal mandate. The fact that the AO is not satisfied with the explanation of the Respondent regarding the source funds for the investment should be opined by way of a categorical finding, which is not at all in this case. A mere observation that the explanation offered is not found to the satisfaction of the....
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....;ble Apex Court in the case of Commissioner of Income Tax-2 V/s M/s Ultra Tech Cement Ltd. SLP (Civil) Diary No.(s) 19601/2018 (xv) Hon'ble I.T.A.T. A Bench Bombay in the case of DCIT V/s L&T Power Development Ltd in I.T.A. No.874/Mum/2017. 11. We have heard rival contentions and perused the records placed before us and carefully gone through the judgments referred and relied by both the parties. Revenue is aggrieved with the finding of Ld.CIT(A) relating to the disallowance of Rs. 2,31,50,925/- made by the Ld.A.O u/s 14A of the Act by applying Rule 8D of the IT rules for the alleged application of interest bearing funds being utilized for investment in group concerns. There is no dispute to the fact that no dividend income/exempt income have been earned by the assessee during the year and also there is no satisfaction recorded in the body of the assessment order by the Ld.A.O which could show the particular instance, where the interest bearing funds have flown to the investment in group concerns which are not fetching any interest income. 12. We find that Ld.CIT(A) deleted the impugned disallowance made u/s 14A of the Act at Rs. 2,31,50,925/- relying on various ....
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....pany has made borrowings from banks and financial institutions on which i: r.c: paid interest, investments in mutual funds and short-term funds were made out of surplus funds available with the appellant from time to time as per the bank statements produced, Only the interest of Rs. 2,96,731 was paid on funds utilised for making investments on which exempted income was receivable (as admitted by the appellant during the course of appellate proceedings) and hence the same is treated as expense attributable to exempt income, In respect of investments of Rs. 60,77,75,000 made in subsidiary companies as per documents produced before me, they are attributable to commercial experienced because as per submission made by the appellant, it had to form. special purpose vehicles (SPVs) in order to obtain contracts from the National Highway Authority c:" India and the special purpose vehicles so formed engaged the appellant company (E contract to execute the works awarded to them (i.e. SPVs) by the National Highway Authority of India, In its profit and loss account for the year, the appellant has show, the turnover from execution of these contracts and therefore no expense and interes....
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.... the manner indicated in sub-rule (2) of rule 3D of the said rules. 6.3 We have carefully considered the submissions and perused the records. we find that the learned Commissioner of Income-tax (Appeals) has given a finding thai only interest of Rs. 2,96,731 was paid on funds utilised for making investments on which exempted income was receivable. Further, the learned Commissioner of Income-tax (Appeals) has observed that in respect of investments of Rs. 60,77,75,000 made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form special purpose vehicles (SPVs) in order to obtain contracts from the National Highway Authority of India and the special purpose vehicles so formed engaged the assessee-company as contract to execute the works awarded to them (i.e. SPVs) by the National Highway Authority of India. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the special purpose vehicles can be disallowed u....
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....) 380 ITR 652 (P&H). (iv) CIT vs. Gujarat Apollo Industries Ltd. 2014 (12) TMI 178 (Guj). (v) CIT vs. Max India Ltd. (2016) 388 ITR 81 (P&H). 3.4.2 The Assessing Officer has stated that the assessee did not furnish any evidence to show that interest bearing funds have been used for investment. The Hon'ble Punjab & Haryana High Court in M/ s Abhishek Industries Ltd (Supra) has held that the Assessing Officer cannot by recording gcr.eca. observations, particularly where the assessee has denied using in ere s: bearing funds, proceed to infer that interest bearing income must have beer. used to earn exempted income. Section 14A of the Act, being in the nature of :an exception, has to be construed strictly and only where the Assessing Officer records satisfaction, on the basis of clear and cogent material, shall an order be passed vi] s 14A disallowing such a claim. The Hori'ble Punjaz & Haryana High Court in M/ s Max India Ltd. (Supra) has held that presumption as regards the utilization of interest fee funds and borrowed funds in a mixed pool ought to be in favour of assessee. The Department could have rebutted this presumption by calling for the rec....
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....rpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the in vestee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure" The Respondent hereby most humbly submits that, the facts of the Respondent's case are altogether on a divergent alley as compared to the facts of the case of 'Maxopp Investment Limited' wherein investments were made in listed concerns during the year under consideration and dividend income was earned and was claimed as exempt in the return of income. It was an admitted position that the investments were made out of borrowed funds. Whereas in the respondent's case all the investments have been made in the shares of unlisted and unquoted companies from which it never earned any dividend....
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....on is also in respect of net income entailing that when there is no exempt income, disallowance is not attracted. Therefore, it most respectfully submitted that the ratio laid down in the case of Maxopp Investments does not hold good in the present case before your Honour". 14. From going through the above discussions, we are satisfied with the submission made by the Ld. Counsel for the assessee that the judgment of Hon'ble Apex Court in the case of Maxopp Investment Ltd (supra) is not applicable on the assessee as the facts are different. Similarly reliance placed by Ld. DR on the decision of I.T.A.T. Amritsar Bench is also not applicable to the facts of the assessee. 15. Further we are of the considered view that disallowance u/s 14A of the Act is not called for in the case of the assessee as there is no dividend income earned during the year and the assessee's case is squarely covered in the judgment of Hon'ble Gujarat High Court in the case of CIT V/s Corrtech Energy (P) Ltd (supra) wherein the Hon'ble High Court has held that "where the assessee has not made any claim for any exemption then in such situation the disallowance u/s 14A of the Act have no applicatio....
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....the circumstances of the case, the learned CIT(A) has erred in law by deleting the addition of Rs. 2,00,000 / - made by the A0 on account of various expenses without considering the fact that the assessee had failed to furnish proof to establish genuineness of various expenses in the light of the fact that certain expenses were made in cash and some vouchers were self prepared by the assessee. 6.1 The Respondent has claimed administrative expenses in the nature of misc. expenses, repair and maintenance, stationery and printing expenses, travelling expenses and vehicle running expenses of Rs. 20,51,319/-, out of which an ad-hoc disallowance amounting to Rs. 2,00,000/- has been made by observing that the vouchers were self prepared and some of the payments were made in cash and the same were not cross verifiable. 6.2 The books of accounts along with all the bills and vouchers were produced before the learned AO during the course of assessment proceedings and were subject to test check by the learned AO and it was explained that the expenses have been properly incurred and also accounted for and that considering the nature and volume of business also the expenditure ....