TaxTMI 
TaxTMI 
2022 (7) TMI 789
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.... , which the Assessing Officer has taken into account for the purpose of computing disallowance u/s.36(i)(iii) were out of own funds. 5. The CIT(A) erred in confirming the disallowance made u/s.37(1) of Rs.1,12,47,302/-. 6. The CIT(A) erred in not appreciating the fact that the entire expenditure related to the appellant's business activities and hence disallowance u/s.37(1) is not attracted. 7. The CIT(A) erred in not appreciating the fact that the investments in shares and share application money (except the investments of Rs.4,99,400/- in Asia Coke Ltd) which the Assessing Officer has taken into account for the purpose of computing disallowance u/s.37(1) were out of own funds. 8. The CIT(A) erred in not appreciating the fact that the Assessing Officer cannot make disallowance twice once u/s.14A and again u/s.36(i)(iii) and 37(1). 9. For these and other grounds that may be adduced before or at the time of hearing, the Hon'ble ITAT may be pleased to delete the following additions: i. Disallowance u/s. 36(i)(iii) of Rs.3,35,30,367/- ii. Disallowance u/s.37(1) of Rs.1,12,47,302/-." 3. Brief facts of the case a....
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.... share application money does not qualify for computation of disallowance u/s.14A r.w. Rule 8D as the share application money is only an advance. It qualifies as investments for the purpose of computation of disallowance u/s.14A r.w. Rule 80 only after allotment of shares. In this connection, we rely on the following ITAT Order : i. ITAT Delhi decision in the case of T&T Motors Limited Vs Addl.CIT, Range-16, New Delhi (I.T.A No.5096/Del/2011 dated 22.11.2013) -Annexure-2 ii. Aban Investments (P.) Ltd Vs DCIT, Company Circle 1 (1), Chennai [2012] 52 SOT 36 (Chennai)(URO) - Annexure-3 In the following cases, it has been held that strategic investments made in subsidiary companies have to be excluded for computation of disallowance u/s.14A r.w. Rule 8D. I. ITAT Chennai in the case of EIH Associated Hotels Ltd Vs DCIT In I.T.A. No.1503/Mds/2012 date 17.07.2013 - Annexure 4 II. ITAT Chennai decision in the case of L&T Infrastructure Development Projects Ltd Vs ITO (37 IIR (Trib) 10). - Annexure 5 III. Interglobe Enterprises Ltd VS DCIT (ITA No.1362 & 1032 / Del / 2013 dated 04.04.2014 - Annexure 6 The investments in....
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.... Rule8D(2)(i) 499400*0.15(interest taken at 15 %) 8D(2)(i) 749810 ii. Disallowance of Interest expenditure Rule 8D(2)(ii) A Interest expenditure incurred during the year 37,13,30,488* -14,86,32,823 (suomoto disallowance) = 22,26,97,665(A) B Average Value of Investment including share application money Average of Total assets (2065499400 + 1065499400)/2(B) 1565649400 C Disallowance = A*B/C (10824373975+ 11339790014)/2(C)- (from the figure of balance sheet an amount of Rs.68,38,11,097 is reduced as the said investments were considered to be directly from the capital) 10398270897 8D(2))ii) 3,35,30,367 iii. Aggregate of Opening and Closing Value Value of Investment 31.03.2014 Total for 300,79,20,497 8D(2)(iii) of Investment (Average Value of Investment including share application money) ½% of above & 31.03.2013 174,93,10,497 Average value of investment including share application money 0.5% of above ....
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.... paid for share application money for Wellman coke Ltd. The assessee replied that the investment in the Indian subsidiary i.e. Enmore Coke Ltd. and Wellman Coke India Ltd. were out of capital and only borrowed fund investment was made in Asia Coke Ltd. of Rs.4,99,400 out of borrowed capital." 6. Thereafter, AO made some theoretical discussion about the reasons of disallowance. AO was of the opinion that assessee has to give justification for the purpose of business to claim the interest expenditure. He further observed as under:- " The investments besides generation of income under the head capital gains on account of transfer can only generate an income under the head income from other sources in the form of dividend. The deduction for interest is provided u/s. 57 of the Income Tax Act, if the dividend falls as income u/s 56(1)(i) of Income Tax Act. The dividend from the shares and securities have been specifically made exempt u/s 10(34), 10(34A), etc., and as the dividend from domestic companies has been specifically made exempt u/s 10(34) of the Income Tax Act. Therefore, the investments made in shares and securities and the dividend yield from the same being mpt fro....
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..../s 37(1) as discussed above." 8. AO further made disallowance of receipts not credited to profit & loss account as he noted that assessee has not submitted any reconciliation of receipts as per Form 26AS and he made the addition for interest income of Rs.37,629/- received from Corporation Bank, Jammu & Kashmir. 9. Against the above order, assessee filed an appeal before the ld. CIT (A). Ld. CIT (A) elaborately noted the submission of the assessee. He deleted the disallowance made u/s 14A. However, as regards disallowance u/s 36(1)(iii) & 37(1), by a rather mechanical order, he confirmed the addition as under :- "The first issue is with respect to disallowance interest of Rs.3,35,30,367/- u/s. 36(1)(iii) and the second issue is regarding amount of Rs.1,12,47,302/- disallowed u/s 37(1) of the I.T. Act, 1961. In the assessment order, the AO has stated that the addition u/s 36(1)(iii) and u/s. 37(1) are made without prejudice to the disallowance u/s 14A and if the same is not upheld then the disallowance would lie u/s 36(1)(iii) and u/s 37(1). It is seen that the appellant has added an interest of Rs. 14,86,32,823/- on account of advance to foreign subsidiary. The assess....