TaxTMI 
TaxTMI 
TaxTMI 
2021 (12) TMI 1531
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....mandatory to have positive business income to claim expenses. 4. On the facts and circumstances of the Appellant case and in law the Learned Commissioner of Income Tax (Appeals) failed to appreciate that all borrowed money is deployed in Partnership Firm to earn business income. 5. On the facts and circumstances of the Appellant case and in law the Learned Commissioner of Income Tax (Appeals) failed to appreciate that business income cannot be bifurcated that part of business income is taxable and part is tax free. 6. On the facts and circumstances of the Appellant case and in law the Learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant has earned Rs. 1,41,59,155/- as business income from M/s Ritesh Exports which is significantly higher than the interest expenses claimed. 7. On the facts and circumstances of the Appellant case and in law the Learned Commissioner of Income Tax (Appeals) failed to appreciate that entire share investment has been made out of appellant's own capital and as such disallowance made u/s 14A r.w.r. 8D to the tune of Rs. 32,33,963/- is bad in law. 8. The Appellant craves leaves to add, alter, amend, withdraw or ....
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....023/-. 5. Before the Ld. CIT(A), the assessee claimed that borrowed money was deployed for running business income, however the Ld. CIT(A) confirmed the disallowance observing as under: "5.3 The contentions of the assessee have been duly considered. It is observed that the assessee has borrowed substantial funds @ 9% p.a. and the total interest expenditure claimed is of Rs.52,24,023/-. There is no dispute that the assessee has charged a very nominal rate of interest on the loan given to its related concern, M/s Ritesh Exports considering that the gross interest received is of only Rs.17 60,000/though the opening balance of the loan given is of Rs.927.28 lacs and the closing balance of loan is Rs.848.68 lacs. Thus, the AO has rightly held that the assessee _has diverted his interest bearing funds @ 9% for the purpose of giving loans to its related concern, M/s. Ritesh Exports at a very nominal rate. As regards t e contention of the assessee that he has also earned share of profit of Rs. 1,41,59,155/on his investment in M/s. Ritesh Exports and which should also be considered while computing the disallowance out of interest, it is held that the contention cannot be accepted since, ....
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.... not be allowed if such amount had been advanced to a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was advanced as a measure of commercial expediency. We are of the opinion that the view taken by the Tribunal in Phaltan Sugar Works Ltd (supra) that the interest was deductible as the amount was advanced to the subsidiary company as a measure of commercial expediency is the correct view, and the view taken by the Bombay High Court which set aside the aforesaid decision is not correct. Similarly, the view taken by the Bombay High Court in Phaltan Sugar Works Ltd. vs. Commissioner of Wealth-Tax (1995) 215 ITR 582 also does not appear to be correct. We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put i....
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....llowance under Rule 8D(2)(ii) of _ Rs.25,12,622/and disallowance under Rule 8D(2)(iii) of Rs.7,21,341/-. However, since the AO had already considered an amount of Rs.34,64,023/for disallowance out of interest expenditure on account of diversion of interest bearing funds @ 9% p.a. for the purpose of giving loans to M/s. Ritesh Exports at a very nominal rate, the AO did not make any further disallowance out of interest as per Rule 8D(2)(ii) and restricted the disallowance u/s.14A to Rs.7,21,341/as per Rule 8D(2)(iii). Since the AO has not made any disallowance u/s.14A r.w.Rule 8D(2)(ii) out of the interest expenditure, the contention of the assessee that the no interest bearing funds have been used for the purpose of its exempt investments is not relevant at all. Moreover, it is observed that the assessee has earned dividend income of Rs.2 77 155/in the relevant year and therefore as per the decision of the Hon'ble ITAT Special Bench, Delhi in the case of Vireet Investments P. Ltd. (82 taxmann.com 415), disallowance is required to be made as per Rule 8D(2)(iii) in respect of the indirect expenses. Accordingly, no infirmity is found in the action of the AO of making the said disallowa....