TaxTMI 
TaxTMI 
2018 (4) TMI 1970
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....llowance of interest u/s 14A without appreciating the facts and evidences brought into light by the AO during assessment proceedings and remand proceedings." 5. Briefly stated, the facts of the case are that the case of the assessee was reopened and the assessment u/s 143(3) of the Income-tax Act was framed vide order dated 4th March, 2014. While framing the assessment, the AO invoked the provisions of Section 14A and proceeded to make disallowance by applying the provisions of Rule 8D of the Income Tax Rules, 1962, and, thus, made the addition of Rs. 1,00,97,137/-. Aggrieved by this, the assessee preferred the appeal before the Ld. CIT(A), who after considering the submissions deleted the addition. 6. The Ld. Counsel for the assessee further submitted that the facts are identical as are in the assessment years 2008-09 and 2009-10. In the assessment year 2008-09 and 2009-10, the issue of disallowance u/s 14A reached up to the stage of the Tribunal. The Tribunal vide its order dated 30.09.2013 passed in I.T.A.No. 580/Ind/2012 for assessment year 2008-09, restored the matter back to the file of AO for decision afresh. In pursuance to the order of the Tribunal, the AO made enquirie....
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....he assessee that there were sufficient funds available in the form of share capital (180 Crs.), reserve & surplus (215 Crs) for making investment in shares. On the other hand, case of revenue was that share capital and reserves etc. had already been invested in acquiring in fixed assets. The Tribunal found force in the contention of assessee. On appeal, the Hon'ble high court observed that there was no evidence to show that share capital, reserves etc. were invested in fixed assets and therefore finding of fact recorded by tribunal was to be accepted. However, it is pertinent to note the observations of the Hon'ble Court in para 10 "If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available." iii) In case of CIT Vs Lakhani Marketing INCL (2014) 272 CTR (P&H) 265, The Punjab & Haryana High Court held "that Business expenditure-Disallowance under s. 14A absence of dividend income-Findings recorded by the CIT (A) as well as the Tribunal that the assessee has not earned any dividend income from shares have not bee....
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....have no application." iv) In case of CIT vs. Holcim India (P) Ltd. (2014) 272 CTR (Del) 282, the Hon'ble Delhi High Court held that the stand taken by the Revenue is confusing. Thus, counsel for the Revenue was asked, to state in his own words, their stand before the Court. The submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT (A) had invoked s. 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. "On the issue whether the assessee could have earned dividend income and even if no dividend income was earned, yet s. 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the Revenue. No contrary decision of a High Court has been shown. Income exempt under s. 10 in a particular assessment year may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of trans....
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....total income under the Act. Hence, what s.14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax-free income. Hence in the absence of any tax-free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT (A), which has been affirmed by the Tribunal. vi. The Hon'ble ITAT Jabalpur Bench has also given same finding in case of ACIT Vs. Ramesh Singh (2014)23 ITJ 245 "there is no dispute to the well settled proposition that interest bearing funds are required to be utilized for business purposes and in case of any diversion of such interest bearing funds to non-business purposes, disallowance in warranted u/s 36(1)(iii) of the Act. However, Hon'ble Supreme Court in case of S.A.Builder Ltd. Vs CIT (2007) 8 ITJ 101(SC) : (2007) 288 ITR 1 have observed that before disallowing interest, AO is required to see business expediency. As assessee has advance to its sister concern as per the business requirements, the matter is resto....
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.... total of these comes to Rs. 85,39,71,303/-. Hence as these funds were available for the investment in shares and mutual funds stood at Rs. 38,83,12,641/-.This clearly shows the availability of non interest bearing funds is abundantly available. 3.11 The Secured loans on the same date stood at Rs. 44.15 Crs. which is secured by either current assets or fixed assets. My attention was drawn that none of these loans were taken to acquire investment as the auditors have certified in their report in para 16 of CARO Report attached with audited financial statement which is a mandatory disclosure of the loan by which asset they are secured. It has been submitted that a glance the Secured Loan as on 31.3.2011 in Audited Balance Sheet Schedule -3 would give automatic conclusion that borrowed funds were not used for acquiring investment. It was argued that the Secured Loans were taken and used for mobilizing/creation of the assets. A close view of the Audited Balance Sheet as on 31.3.2011 shows gross fixed asset at Rs. 108.45 Crs whereas the secured loans are only Rs. 44.15 Crores. However, it has been claimed that after taking the net fixed assets stand at Rs. 79.63 Crs. Therefore, the F....