TaxTMI 
TaxTMI 
2023 (1) TMI 1122
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....in the investments in the companies apart from lease of buildings for business purposes. Assessee also claims to have been doing business of money lending. For the assessment year 2010-11, it has filed its return of income on 15/10/2010 declaring loss of Rs. 1,10,86,790/- 3. During the course of assessment proceedings, learned Assessing Officer observed that the assessee treated a sum of Rs. 38,86,827/- as income from business, though derived by way of rent, instead of income from house property. Assessee pleaded that leasing is one of the objectives of the business and placed reliance on the decision reported in Chennai Properties and Investments (P) Ltd. vs. CIT 266 ITR 685 (Mad). Learned Assessing Officer, however, treated it as 'income from house property' and recomputed the same. 4. Learned Assessing Officer further observed that the assessee earned interest income and claimed the lending as main business activity. Learned Assessing Officer, however, was of the opinion that since the assessee did not have any permission or approval from the RBI, it is not expected to conduct any money lending business as non-banking financial institution, and, therefore, and income from such....
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.... incurring for the exclusive purpose of earning the same is concerned, learned CIT(A) found fault with the approach of the learned Assessing Officer on the premise that for conducting the business of money lending, simply because registration did not take place, it cannot be said that business was not conducted or the indexed cost of acquisition earned there from cannot be treated as 'business income'. Learned CIT(A), however, found that the assessee invested in equity shares but rejected the contention of the assessee that the source of such investment is its own funds. According to the learned CIT(A), the balance sheet of the assessee reveals that the assessee revalued the assets in land and equity shares, and such revaluation amount does not give rise to any cash flow for investment in equity. 10. On a thorough examination of the financials of the assessee, learned CIT(A) found that the own funds of the assessee were only to the tune of Rs. 14.59 crores, namely, equity: Rs. 2 crores; Reserve and surplus: Rs. 12.59 crores as on 31/03/2009; that as against that, it had fixed assets of Rs. 3.64 crores and net current assets of Rs. 30.25 crores (total Rs. 33.89 crores); that any ac....
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....lowing deduction for interest which is attributable to such exempt income. 14. Learned CIT(A) accordingly proceeded further and recorded that the claim of the assessee to the effect that no expenditure was incurred for earning the exempt income cannot be accepted. She, therefore, while recording the reasons for her dissatisfaction on the ground that not the entire borrowed funds were utilised for business purpose, she opined that it is a fit matter to proceed to compute the disallowance under section 14A of the Act. She, therefore, directed the learned Assessing Officer to compute the disallowance under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 ('the Rules'). This action of the learned CIT(A) is challenged by the assessee under grounds 3 to 11 of this appeal. 15. Apart from this, learned CIT(A) also considered the addition on account of long term capital loss. She agreed with the learned Assessing Officer in the light of the fact that the assessee purchased the shares at Rs. 250/- per share with a premium of Rs. 240/- per share and just before two months of assessee selling them to the very same company at Rs. 10/- per share, the company raised funds ....
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....come as such, but failed to make the statutory deduction and, therefore, while exercising the plenary powers, it is incumbent upon the learned CIT(A) to look into the aspect of disallowance which the learned Assessing Officer failed to do. We are in agreement with this finding of the learned CIT(A). 19. Having said that, we are of the opinion that while looking into the aspect of allowability or otherwise of an expenditure on the touch stone of section 14A of the Act read with rule 8D of the Rules, it is imperative for the learned CIT(A) to consider the statement of the assessee that no expenditure is incurred for making and maintaining such a huge investment, and in that process, the learned CIT(A) has necessarily to delve deeper and record a satisfaction. There is a subtle difference between the learned Assessing Officer exercising jurisdiction 14A of the Act without recording satisfaction leaving it to be recorded by the learned CIT(A), and the learned CIT(A) looking into the aspect of learned Assessing Officer treating the exempt income as such but failing to enquire the allowability of relevant expenditure. This case falls in the second category whereas all the cases relied u....
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.... to recompute the disallowance. 22. In view of this need to verify the facts and figures, we are of the considered opinion that it would be in the interest of justice to set aside this issue to the file of the learned Assessing Officer for verification of the facts and figures and to compute the disallowance under section 14A of the Act read with rule 8D of the Rules. We accordingly set aside this issue to the file of learned Assessing Officer and direct him to recompute the disallowance under section 14A of the Act read with rule 8D of the Rules after verification of the necessary documents furnished by the assessee and also keeping in mind the principle that the disallowance under section 14A of the Act read with rule 8D of the Rules shall not exceed the exempt income earned during the year under consideration. These grounds are accordingly treated as allowed for statistical purposes. 23. Next coming to the addition on account of long term capital gains, the grievance of the assessee is that the learned Assessing Officer referred to the confessional statement of Mr. Raghurama Krishna Raju recorded under section 132(4) of the Act but such a document was not furnished to the asse....
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....at the assessee originally invested an amount of Rs. 3,44,95,000/- in M/s. Raghurama Renewable Energy Pvt. Ltd., and an amount of Rs. 40 lakhs in M/s. Dharmashala Hydro Power Ltd., during the financial years 2003-04 to 2005-06 and while transferring such shares to M/s. Ind Barath Power Infra (P) Ltd., assessee acquired the shares in question at a premium of Rs. 240/-. As a matter of fact, M/s. Ind Barath Power Infra (P) Ltd., was previously known as M/s. Kanumuri Holdings Pvt. Ltd., whose promoter was Mr. Raghurama Krishna Raju. So the journey of the assessee from M/s. Raghurama Renewable Energy Pvt Ltd., to M/s. Ind Barath Power Infra (P) Ltd., is too long enough to plead ignorance as to the state of affairs of M/s. Ind Barath Power Infra (P) Ltd. The authorities are justified in disbelieving the transaction of the assessee selling the shares at face value of Rs. 10/- per share which it purchases at a premium of Rs. 240/-. It is not the case of the assessee that M/s. Ind Barath Power Infra (P) Ltd., is sinking into irrecoverable losses prompting them to exit the investment at a paltry bargain of Rs. 10/- per share. The transaction has to be viewed in the light of the common course....
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....nvestment of Rs. 2,72,90,28,519/- whereas the P&L Account reveals the claim of interest expense to the tune of Rs. 3,28,15,444/-. Assessee did not reveal any expenditure incurred for making and maintaining the investments. 32. Assessee's case was that during the year under consideration, it did not earn any dividend income and, therefore, pursuant to the decision of Kolkata Bench of Tribunal in the case of M/s. REI Agro Limited, Kolkata vs. DCIT and the decision of Hon'ble Bombay High Court in the case of CIT vs. M/s. Delite Enterprises no disallowance under section 14A of the Act read with rule 8D of the Rules. Apart from this, the assessee had taken the plea that it did not utilize any borrowed funds for investment and, therefore, no disallowance could be made in respect of the exempt income to earn which no borrowed funds were utilized. 33. Learned Assessing Officer discussed this aspect while referring to the decisions referred by the assessee and also in the light of the CBDT Circular No. 5/2014 dated 11/02/2014 and reached a conclusion that the provisions under section 14A of the Act read with rule 8D of the Rules are applicable to the facts of the case, and proceeded to ma....
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....erage value of the total investment, which yielded the exempt income. Aggrieved by the finding of the learned CIT(A), assessee preferred appeal in ITA No. 386/Hyd/2015. 37. Pursuant to the order of the learned CIT(A) referred to above, learned Assessing Officer completed the consequential assessment by order dated 29/06/2015 making the addition that was directed by the learned CIT(A) under section 14A of the Act read with rule 8D of the Rules. This addition was appealed against but was confirmed by the learned CIT(A) by order dated 19/09/2016. Against this order, assessee preferred ITA No. 1730/Hyd/2016. 38. Learned AR submits that the orders of the authorities below cannot be sustained because the learned Assessing Officer failed to record dissatisfaction requisite under section 14(2) of the Act, they overlooked the fact that the assessee had enough funds and further that the disallowance cannot exceed the quantum of exempt income. Learned AR further submitted that the learned CIT(A) is not justified in passing the order which in fact had the effect of enhancing the total income without providing any opportunity to the assessee. 39. Per contra, learned DR submitted that there i....
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.... suffice if the learned Assessing Officer considers the objections of the assessee before proceeding to invoke the provisions under section 14A of the Act read with rule 8D of the Rules. The discussion of the learned Assessing Officer at paragraph Nos. 4.1 to 4.7 of the assessment order really constitutes the recording of dissatisfaction and nothing more is required. The first contention of the assessee is accordingly rejected. 42. Coming to the second contention of the assessee that the assessee holds sufficient own funds, the order of learned CIT(A) in the first round is self-explanatory. Her specific finding is that while investigating the source and application of funds by the assessee as on 31/03/2011, she found that the assessee revalued the assets (land and equity shares) by Rs. 85,04,26,779.40 which does not give rise to any cash flow and, therefore, cannot be considered as source of funds for investment in shares and accordingly have to be excluded. After excluding the same, learned CIT(A) found that assessee's own funds were substantially exhausted in its business assets and less than Rs. 15 crores was available for investment as against which an investment to the tune o....