TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 640
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....ive of whether dividend and been declared or not." 2. The facts in brief are that the assessee-company was incorporated on 22nd December, 2009 and was noted by the Assessing Officer in the assessment order. It was engaged in the business of providing consultancy relating to investment, acquiring, holding, procuring, purchasing of all types of securities. Assessing Officer from the perusal of the balance sheet noted following position:- As at March 31, 2012 As at March 31, 2011 Share Capital Rs. 4,01,00,000/- Rs. 1,00,000/- Reserve and Surplus Rs. 3,93,64,99,858/- Rs. (2,40,55,991) Short term borrowing Rs. 2,48,74,00,000/- Rs. 4,10,32,00,000/) Non current Investment Rs. 4,00,00,00,000/- - (Rs. 400 crore) Rs. 2,00,00,00,000/- (Rs. 200 crore) 3. On the application of funds shown in the balance-sheet Assessing Officer noted that in the beginning of the year entire investment of Rs. 200 crore was funded by short-term interest-bearing borrowings and only Rs. 1 lakh towards equity capital was available towards interest free funds. Thus, there was a direct clear nexus of utilization of borrowed funds for the purpose of making investments. Further, as....
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....e company has rightly not claimed allowance of expenditure invoking the provisions of section 36(1)(iii) of the I.T Act. However, if at any stage, such submission is made, then also it is held that the same would be not allowable. The AO mentioned 5LP in the case of M/s. Tulip Star Hotels Limited (ITR) & stated that it is clear that the interest expense relatable to investment is not allowable u/s. 36(l)(iii) of the I.T Act. There is no mention of what amount of interest is relatable to how much of investment. (ii). Assessee has in its notes to balance sheet admitted that it is not into the business of giving loan and making investment but it provides consultancy services in this regard. The assessee in its profit and loss account itself has claimed the interest income, not as revenue from operations but as "other income". As such it is clear that the assessee is entitled only to deduction of expenses available against income from other sources. Thus, only those interest expenses which is expended towards earning of interest income is allowable to the assessee as per the provision of section 57(iii) of the I.T Act. As such, interest relatable to investment made is not allowable.....
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....as been held that disallowance u/s. 14A will not apply if there is no exempt income regarding other alternative disallowance made by the ld. Assessing Officer, was in the following manner: - "(i) Since the assessee is not an NBFC and its business activities relates to consultancy in financial matters, the interest is not allowable as there is use of borrowed funds for making investments. (ii) Since the assessee has mentioned the income as ''other income" in the P&L a/c. and there is no nexus between the interest earned and interest paid, the amount is disallowed u/s. 57(iii) of the Act. (iii) Since the investment made could turn into capital gains later the direct interest expenses relatable to holding of investment is not allowable." 5. Ld. CIT(A) held that in this case the assessee had not shown income as 'income from other sources' nor has been claimed, therefore, section 57(iii) is not relevant. In so far as disallowance u/s.36(1)(iii) is concern, she held that though the assessee is not a NBFC, however, the funds used were both for forwarding of loans and investment in share capital which did not yield dividend income during the year. The Assessing Officer h....
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....ck-in-trade, main purpose is to trade in those shares and earn profits therefrom and, in process, certain dividend is also earned which is tax exempt under section 10(34); expenditure attributable to exempt dividend income will have to be apportioned to be disallowed under section 14A. (iii) Rule 8D is prospective in nature and could not have been made applicable in respect of assessment years prior to 2007 when this rule was inserted." 7. She also referred to judgment of Hon'ble Supreme Court in the case of CIT vs. Walfort Share and Stock Brokers P. Ltd., as reported in (2010) 326 ITR 1 (SC) on the issue of disallowance u/s.57(iii) and 36(1)(iii) made by the Assessing Officer. She strongly relied upon the order of the Assessing Officer whereas assessee is not a NBFC and how the interest expenditure cannot be treated as business expenditure and therefore, Assessing Officer has rightly disallowed the same. 8. On the other hand, ld. counsel for the assessee strongly relied upon the order of the Assessing Officer and ld. CIT(A) and submitted that in the Assessment Year 2011-12, the Tribunal in assessee's own case has allowed interest expenditure as 'business expenditure'. 9. ....
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....ns and borrow loans. The main contention of the Ld. AO is that assessee is not carrying on any business and lending and borrowing of the funds is not the business of the company as Assessee Company is not registered as a nonbanking financial companies with the Reserve Bank Of India. We appreciate the concern of the Ld. assessing officer however, we failed to comprehend that why borrowing and lending of the funds cannot be considered as a business. Further absence of any registration certificate with the assessee in accordance with the RBI directions applicable to nonbanking financial companies will not make any material difference in assessing the correct income of the assessee. It may be an offence under the particular directions of the reserve bank of India issued in 1998. Furthermore, it cannot be said that assessee has not borrowed for the purpose of the business when the same money is lent, interest is earned and same is taxed as business income. In fact, out of the transactions with 16 companies of borrowing and lending of the funds, the Ld. assessing officer has not stated that any of the loans given by the assessee does not carry interest. Therefore, all the transactions of....