TaxTMI 
TaxTMI 
2022 (8) TMI 1015
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....sp; Total Exempt income in Rs. 2014-15 9,90,90229 473,49,30,273 58,680 2093 2015-16 9,86,94,172 476,81,80,229 58,680 293 2016-17 10,11,01,788 476,81,80,229 58,680 293 2017-18 8,51,38,444 476,81,21,549 58,680 Nil 3. The CIT(A) by its combined and consolidated order for all the assessment years in question has disposed of all the issues in favor of the assessee. The submission made by assessee and conclusion drawn thereon by CIT(A) is reproduced hereunder: In reference to the allowance of Rs. 9,90,90,229/- the following is submitted: 1. Whereas the facts of the case do exhibit the nature of transaction is of investment in the subsidiary companies which were formed part of the business of the holding company i.e. the assessee company. In such circumstances when the holding company is making investment in subsidiary companies for achievement of its objects and to enhance the same business by diversification of its investment through separate special purpose vehicles, it cannot be said to have made inv....
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....ny interest in or about the formation or promotion of any other such company in which the Company may have an interest." 2.2 Accordingly the company is borrowing the funds for achievement of its main objective and the funds have been utilized for the purpose of the business. 2.3 Under the scheme of the Act, interest incurred by an assessee is allowable business expenditure under section 36(1)(iii) of the Act, subject to the following conditions: * money should be borrowed by the assessee; * the same must be borrowed for the purpose(s) of the business; and * the assessee must have paid interest on the borrowed amount. 2.4 Once the aforesaid three conditions are satisfied,- interest paid on capital borrowed is to be allowed as deduction under section 36(1)(iii) of the Act. 2.5 On perusal of the aforesaid, it will be noticed that one of the pre-conditions for allowability of interest expenditure under section 36(1)(iii) of the Act is that the funds must be borrowed for the purpose(s) of the business. It is therefore, necessary to establish, on facts, that the funds, on which interest has been paid and claimed as deduction, were not only borrowed but were also actually ut....
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....sted in the subsidiaries. 1. Further, the application of section of 14A are tested as to why these are not applicable to the case of the assessee company. 1.1 In the case of CIT Vs. HOLCIM INDIA P. LTD. (ITA No. 486/2014 & ITA No. 299/2014J the following is held: 13. We are confused about the stand taken by the appellant-Revenue. Thus, we had asked Sr. Standing Counsel for the Revenue, to state in his own words, their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to make the said addition. Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondent-assessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A. 14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can ....
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....e sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. 16. What is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that....
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....e if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to such income. Since the exempt income is nil, 14A (2) & (3) is also not applicable. It is further submitted that once the requirements of 14A do not fulfill in the case of the assessee, therefore the application of Rule 8D shall also be not applicable. Your honour, it is humbly submitted that the assessee had dividend income of Rs. 2,093/only against an investment of Rs. 58,680/- in shares of Punjab and Sind Bank, which is a petty investment and this is not related to investment in subsidiary companies. Investment in subsidiaries which has been considered for disallowance is Rs. 473.48 Crores. Therefore you are humbly requested to restrict the disallowance upto Rs. 2093/- only and not for the whole investments where the assessee company has not earned any exempt income. The said proposition was upheld by the Hon'ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT ITA No. 117/2015 in their order dated 25.02.2015. Copy Enclosed. The same matter was upheld in favor of the assessee by Honble Delhi High Court in the case of Cheminvest Ltd. an....