TaxTMI 
TaxTMI 
2017 (10) TMI 1656
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....nt of Rs. 3,45,17,625/-. The same was upheld by the Ld. CIT(Appeals). 4. Aggrieved against which the assessee has filed present appeal before us raising the following grounds: 1. That the Ld. CIT (A) has erred in confirming the order of the Assessing Officer in sustaining the addition of Rs. 3,13,578/- by invoking the provisions of section 14A because of the following facts:- i). That no specific satisfaction has been recorded by the Assessing Officer with regard to disallowance made u/s. 14A since the Assessing Officer has not recorded any reason for rejecting the claim of assessee and, as such, no disallowance could have made as per the binding judgment of Jurisdictional Hon'ble Punjab & High Court in the case of CIT Vs. Kapson Associates as reported in 381 ITR 204. ii). That the investment made by the assessee was statutory requirement of the Govt. and being strategic investment, no disallowance could be made u/s. 14A since such investments are attributable to commercial expediency. iii). That the assessee had sufficient interest free funds in the shape of 'Reserves and Surplus' and share capital and, thus, no borrowed funds hav....
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....iture on account of interest payment can be said to have been incurred for the purpose of earning tax free income. The entire investments, the income from which would not form part of the total income under the Act, have been made out of internal accrual without having incurred any interest expenditure during the year. However, the amount of dividend received is directly credited to the account of Company through e-banking. Therefore, no direct or indirect expenditure has been incurred by the assessee and therefore no disallowance under section 14A applicable to the company. In view thereof, the applicability of Rule 8D does not arise in the case of the assessee. Further, Hon'ble Supreme Court in case of CIT vs. Walfort Share & Stock Brokers P. Ltd. (2010) 192 Taxmann 211 held that for the purpose of invoking the provision of section 14A of the Act, there has to be a proximate cause of the expenditure with the exempt income. In the absence of the proximate cause for disallowance, the provision of section 14A cannot be invoked. In the case of High Court of Punjab & Haryana (Commissioner of Income Tax, Jalandhar) Vs. Deepak Mittal, (Section 14A....
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....rt of interest only and further referred that other expenses also had to be included. Ld. counsel for the assessee pointed that firstly no working or calculation was submitted to the AO at all and therefore the observations of the AO in this regard were without any basis. Further Ld. Counsel stated that clearly nowhere in the satisfaction recorded, the Assessing Officer has mentioned as to why the claim of the assessee that since no borrowed funds were used for making the investments no interest expenditure was to be disallowed or since the dividend received is directly credited to the account of the assessee no expenses are incurred for the purpose of earning dividend income, was incorrect. Ld. counsel for the assessee pointed out that no reference to the expenditure debited in the books of accounts of the assessee has been made by the AO pointing out that such expenditure could be said to have been incurred for the purpose of earning exempt income from the impugned investment for objective reasons. Ld. counsel for the assessee therefore stated that the satisfaction recorded by the Assessing Officer could not said to be an objective satisfaction. Ld. counsel for the assessee relie....
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....come under the Act. 20. The matter stands concluded by a judgment of this Court dated 27.01.2015 in Commissioner of Income Tax-1, Ludhiana v. M/s. Abhishek Industries Ltd. Ludhiana, ITA No. 320 of 2013, where the Division Bench held:- "Section 14A of the Act requires the Assessing Officer to record satisfaction that interest bearing funds have been used to earn tax free income. The satisfaction to be recorded must be based upon credible and relevant evidence ......................................" 21. The judgment in Maxopp Investment Ltd. (supra) also supports this view namely that the Assessing Officer must record reasons for not being satisfied with the correctness of the assessee's contentions with regard to the aspects mentioned in sub-sections (2) and (3) of Section 14A. It is true that the Delhi High Court merely states that such rejection must be for disclosed cogent reasons. The disclosure, however, can only be in writing. It can 15 of 32hardly be suggested that the disclosure remains in the Assessing Officer's mind. The assessee is entitled to test the basis of the rejection of his contentions. This can be done only if the Assessing Offi....
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....rder. Ld. counsel for the assessee pointed out that the aforesaid fact was substantiated from the balance sheet and profit and loss account for the above mentioned years which was also filed before the CIT (Appeals). Ld. counsel further stated that it was also demonstrated before the CIT (Appeals) that in all the relevant years when the investment was made the assessee had sufficient own funds for making the investments. Attention was drawn to the detail tabulating the said facts reproduced at para 11 of the CIT (Appeals) order as under: 13. Ld. counsel stated that it was clearly evident from the above that no borrowed funds had been used for making the investments and that the same had been made entirely out of own funds of the assessee and, therefore, no disallowance of interest expenditure could be made u/s. 14A. Reliance was placed on a number of decisions of High Courts in this regard: 1) CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) 2) CIT Vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) 3) CIT VS. Max India Ltd., ITA No. 210/Chd/2013 dt. 08-03-2017 14. Ld. DR on the other hand relied upon the order the CIT (Appeals) stating that....
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....sole objective of the investment was not to earn dividend or capital gain on sale of such share but to provide trading platform to the general public. Ld. counsel for the assessee drew our attention to the detailed submissions made before the lower authorities reproduced at page Nos. 17 and 18 of the CIT(Appeals) as under: * After the scam in stock market in year 1994 and formation of regulatory i.e. Securities and Exchange Board of India, the regulatory decided to discourage the functioning of regional stock exchanges in India and promoted a national level of stock exchange i.e. National stock exchange. * Later on, it was felt by the regulatory that it was difficult to control and regulate the functions. Then the question arose as to what the members of regional stock exchanges would do in case of closure of stock exchanges and how to provide a trading platform to the investing public in the remote areas. To solve this issue, a meeting of a group on revival of small stock exchanges was held on 8tk September 1999, to discuss the suggestions/revival plans forwarded by small exchanges for their revival. The group considered the suggestion/revival plans subm....
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....ote areas i.e. the said investment was made to promote the objective of promotion of stock and shares.. Therefore, the provisions of Section 14A are not applicable in case of the appellant. In this regard, the appellant places reliance on the following judicial pronouncements: 18. It was therefore contended that the said investment being strategic in nature no disallowance u/s. 14A was warranted. Reliance was placed on the decision of the Delhi High Court in the case of CIT Vs. Oriental Structural Pvt. Ltd. in ITA No. 605/2012 dated 15.1.2013. 19. Ld. DR, on the other hand, relied upon the orders of the lower authorities and stated that no differentiation on account of strategic investments or otherwise was permissible for the purpose of applicability of section 14A. 20. Having heard both the parties, we agree with the Ld. counsel for the assessee. Undoubtedly and undisputedly, the investment made in share of LSE Securities Ltd. was for the purpose of facilitating and providing a trading platform to the general public by creating a subsidiary company. Having said so, the commercial expediency of making the impugned investment stands established and the interest expenditure....