TaxTMI 
TaxTMI 
2015 (6) TMI 1188
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....ous year. 3. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) with the submission that the assessee has not paid any interest during the year. The ld. CIT(A) re-examined the issue in the light of various judicial pronouncements and following his earlier order for assessment year 200910 in the assessee's own case, the ld. CIT(A) has deleted the addition. 4. Now the Revenue is in appeal before the Tribunal and during the course of hearing of the appeal, the ld. D.R. has invited our attention to the order of the Tribunal for assessment year 2009-10 in the assessee's own case with the submission that the Tribunal has adjudicated the issue of applicability of rule 8D of the rules while computing the disallowance under section 14A of the Act. Copy of the order of the Tribunal is placed on record. The ld. D.R. has further contended that having adjudicated the issue in detail in the light of the relevant provisions of the Act, the Tribunal has held that once provisions of section 14A of the Act are to be invoked, disallowance is to be computed as per rule 8D of the rules. Since the ld. CIT(A) has adjudicated the issue in the instant assessment....
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....he business activity of the appellant as per its objectives. During the year the appellant has paid interest on the public deposits and borrowings which shows that substantial amounts of funds have been borrowed for business purpose. Finally, the AO has held that since; investment isGBP not the business activities of the appellant, therefore, these investments in shares are treated as advance in the nature of diversion of funds to sister concerns without charging any interest. No dividend has been received during the year on these shares, is also a fact which has been relied upon by AO. It is noticed that the AO has not appreciated the "business connection" with the sister concerns and "commercial expediency", as argued by the appellant in respect of these transactions of investment. This aspect is important in the context of section 36 of the I.T. Act under which the claim of deduction of interest is made by the appellant. The ratio and decision in the case of CIT vs. Daliuia 254 ITR clarifies the position on this issue where it was held that. ''if there is an another connection between the assessee's business and that of the person to whom such advance is made, then s....
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....I am unable to find a nexus between the borrowed capital and amount invested in the earlier years. Accordingly, the finding of the AO that the interest bearing fund was directed for investment is not proved. The decision in the case of CIT vs. Gopi Krishna 47 ITR had laid the correct ratio where it was held that "Department is not entitled to disallow interest paid unless there is a evidence to show that a particular amount borrowed was utilized for private purposes". 15. Finally, it is also seen that the AO has considered the investment in shares of the sister concerns as advance by looking into the substance of the transactions. The only basis for reaching this conclusion is that the appellant is not an investment concern and no dividends have been received during the year. I would observe that it was a hasty and general conclusion reached by AO because the distinction between "investment" and "advance" is very wide and both are two different transactions. The transacting parties have entered the transaction as investment which is properly, evidenced and documented without any defect and hence reason for suspicion. Under the circumstances, the nature of transaction canno....
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....6 (1) (iii) of the I. T. Act. Thereafter it is noted by CIT(A) in para 14 of his order that it cannot be said that the amounts invested by assessee are for non business purpose, though same may be indirect business connection. We are of the considered opinion that having business connection is different thing and making investment for business expediency is different thing altogether. In the present case, this is the only claim of the assessee before the Assessing Officer and before us also that the investments made by the assessee in sister concerns who are engaged in a connected or similar business. Even if this is correct then also, it cannot be said that this investment in sister concern is for business purpose or for business expediency. Hence, the judgment of Hon'ble apex court rendered in the case of S. A. Builders (Supra) is not rendering any help to the assessee. Investment in shares is made only to earn dividend income and as in case of any other investment, there may be capital gain or loss also at the time ofsale of capital asset. Till the assessment year 2003-04, dividend income was taxable and therefore, deduction on account of interest on borr....
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....e revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is Rs. 1,000, if there is income of even Re. 1, the expenditure would be deductible and there would be resulting loss of Rs. 999 under the head " Income from other sources ". But if there is no income, then, on the argument of the revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. It would make no difference to this process whether the expenditure is X or Y or nil; whatever is the proper expenditure allow....
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....s not an allowable expenditure under any provision of the Act. It is definitely not allowable for computing salary income or income from house property. It cannot be said that deduction on account of interest expenditure is to be allowed for computing income from capital gain since income on account of capital gain is taxable because deduction on account of interest expenditure is not allowable for computing capital gain. For computing capital Gain, deduction is allowable in respect of cost of acquisition, cost of improvement and cost of transfer only and interest does not fall in any of these three categories. From A.Y. 2004 - 05, it is not an allowable deduction u/s 57 (iii) i.e. for computing Income from other Sources also because, deduction is allowableunder this section for thoseexpenses which are incurred for earning an income taxable under the head income from other sources. Since now dividend income is not taxable under this head, deduction is not allowable u/s 57 (iii). Now, the only remaining section is section 36 (1) (iii) for allowability of interest expenditure. This is admitted position that the assessee is not dealing in shares as the assessee itself has shown it as ....
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....isallowance can be made u/s 14A but in these judgments, the judgment of Hon'ble Apex Court rendered in the case of Rajendra Prasad Moody (supra) was not brought to the notice of the tribunal and Hon'ble High Court and hence, it was not taken note of. It was also not taken note of that even if it is held that no disallowance is to be made u/s 14A of the Act, then also, there has to be a positive finding that under which section, this interest expenditure is allowable. Since dividend income is not subject to tax as income from other sources from assessment year 2004-05, it cannot be said that interest expenditure has to be allowed u/s 57(iii) of the Act. This is also not a case of the assessee that investment in shares was made out of borrowed funds in course of dealing in shares and therefore, interest expenditure is allowable u/s 36 (1) (iii) of the Act. We have already seen that interest income is not allowable while computing capital gain. Hence, even if it is held that section 14A is not to be invoked for making disallowance in a year in which there is no actual dividend income as was held by Hon'ble jurisdictional High Court and Hon'ble Gujarat....
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....orrowing funds for making investment in shares is not allowable from assessment year 2004-05 because the dividend income is not taxable income under the head income from other sources and therefore, deduction is not allowable u/s 57(iii) of the Act. We have also seen that no deduction is allowable u/s 36 (1) (iii) also. Hence we reverse the order of learned CIT (A) and restore that of the A.O. Regarding various judgments cited by the learned AR of the assessee including the judgment of Hon'ble apex court rendered in the case of S. A. Builders (Supra), we would like to observe that no judgment is rendering any help to the assessee because we have seen that deduction is not allowable under any provisions of any section of Income Tax Act. Hence, there is no need to disallow any expenses which is not allowable. In fact, the assessee has failed to make out a case that deduction of interest expenditure is allowable under the provisions of any section of Income Tax Act, 1961. 44. In the result, the appeal of the Revenue stands allowed." 8. The mode of computation as per rule 8D of the rules was also examined by the Tribunal in the case of Income Tax Officer vs. M/s Shrut....
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....orm part of the total income under this Act. Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on orbefore the 1st day of April, 2001. RULE 8D OF THE RULES: "8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of subrule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, na....
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....has to compute the expenditures by adopting the formula laid down in rule 8D of the Rules. 9. Turning to the facts of the case, the assessee has earned the dividend income at Rs. 68,635/- for which it has claimed expenditures of only Rs. 16,544/- of which details were furnished before the Assessing Officer. Apparently, the quantum of expenditures does not commensurate with the exempted income claimed by the assessee. Therefore, the Assessing Officer has every reason to doubt the correctness of the expenditures claimed by the assessee for earning the exempted income of Rs. 17,68,735/-. Therefore, we are of the view that the Assessing Officer has to re-compute the expenditures relating to the dividend income which does not form part of total income under this Act and for computing the expenditures, the Assessing Officer has no other option but to adopt the formula laid down under rule 8D of the Rules and he did the same. But from the calculation, we find that the Assessing Officer has not determined the amount of expenditures directly related to the income which does not form part of the total income of the assesseeas per sub-rule (2) (i) of rule 8D.&....