TaxTMI 
TaxTMI 
2025 (12) TMI 1761
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....ot diverted any interest-bearing borrowed funds for making investments in equity shares and that disallowance under Section 36(1)(iii) is not applicable. Reliance is placed on the ITAT order for AY 2016-17, wherein similar facts were adjudicated in favour of the appellant. Ground No. 3 The learned CIT(A) erred in upholding the application of Rule 8D for disallowance under Section 14A, even though no income exempt under Section 10(34) or Section 10(38) was claimed as exempt and all dividend income received was offered to tax by the appellant. It is submitted that the disallowance under Section 14A should be restricted to the actual exempt income earned, if any, and not on the total value of investments. Ground No. 4 The learned CIT(A) erred in dismissing the ground on the absence of any expenditure directly relatable to exempt income, as no such expenditure has been incurred by the appellant for earning exempt income. Ground No. 5 The learned CIT(A) erred in overlooking the fact that the appellant company maintains proper books of account, audited by Chartered Accountants, and that application of Rule 8D is not justified in the a....
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....s, from the financial statements of the assessee, the A.O. noticed that the assessee had earned dividend income of Rs. 23,000/- on investment in equity instruments. The A.O. further noted that the assessee had made current investments of Rs. 5,302.61 lakhs as on 01.04.2014 and Rs. 5,479.11 lakhs as on 31.03.2015 in equity instruments. 4. The A.O. called upon the assessee to explain as to why disallowance should not be made under Section 14A read with Rule 8D of the Act in respect of expenditure allegedly incurred for earning exempt dividend income. In response, the assessee submitted that it has not incurred any direct expenditure for earning the dividend income and that the investments were made out of its own funds for business purposes. The assessee further submitted that the dividend income earned was only incidental and no administrative expenditure was attributable to such investments. 5. The A.O., after considering the submissions of the assessee and also taking note of the financial statements for the impugned assessment year, opined that the assessee had made substantial investments in equity instruments and had also earned exempt dividend income. The A.O. further ob....
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....ts as on 01.04.2014 stood at Rs. 5,302.61 lakhs and as on 31.03.2015 stood at Rs. 5,479.11 lakhs. During the year under consideration, the assessee earned dividend income of Rs. 23,187/-, which was rounded off to Rs. 23,000/- in the assessment order. The Ld. counsel submitted that the assessee has not incurred any direct expenditure for earning such exempt income. He further submitted that in response to the show-cause notice issued by the A.O., the assessee had categorically explained that no expenditure was incurred for earning the exempt income. However, the A.O., not being satisfied with the said explanation, proceeded to apply the provisions of Section 14A read with Rule 8D and computed the disallowance at 1% of the average investment, which worked out to Rs. 53,90,000/-. 10. The learned counsel for the assessee further submitted that the appeal preferred by the assessee before the Ld. Addl./Joint CIT(A) was dismissed mainly by placing reliance on the decision of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd. and by holding that it is immaterial whether the assessee has actually earned dividend income or not. The Ld. counsel for the assessee submitted that....
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....uthorities below. The only issue involved in the present appeal is with regard to the disallowance made under Section 14A read with Rule 8D amounting to Rs. 53,90,000/-. We find that under an identical set of facts, the Coordinate Bench of the Tribunal in the assessee's own case for A.Y. 2016-17 vide ITA Nos. 781/Hyd/2020 & 6/Hyd/2021 dated 05.06.2024 has examined an identical issue and held that disallowance under Section 14A read with Rule 8D cannot exceed the exempt income earned during the relevant assessment year. The Tribunal, after considering the judicial precedents on the issue, upheld the restriction of disallowance to the extent of exempt income. The relevant finding of the Coordinate Bench reads as under: "12. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. We have also carefully considered various evidence filed by the assessee in light of relevant reasons given by the Ld.AO and the Ld.CIT(A) to deal with the issue of disallowance of interest u/s. 36(1)(iii) of the Act. The provisions of section 36(1)(iii) of the Act deals with deduction towards interest paid on borrowed capital. I....
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....dvantage to the assessee. We find that the assessee has made investments in various companies like M/s. Bhaskar Transport Pvt. Ltd., M/s. Bhubaneswar Power Pvt. Ltd., (BPPL), M/s. J.L. Power Ventures Pvt. Ltd., M/s. Aditya Automotive Applications Pvt. Ltd., M/s. Jasper Automobiles Pvt. Ltd., and M/s. Indicor Steel Pvt. Ltd. All these companies are directly or indirectly connected with business carried on by the assessee. If the amounts so invested is purely a strategic investment and for the purpose of commercial expediency, then the AO cannot held that the said investments are for non-business purpose. Further, by investing in various companies linked with Tata Group concern, the company got several advantages in its automobile dealership business, since the appellant is only a sole and exclusive authorised dealer of Tata Motors for the entire state of Telangana and in the three districts of Andhra Pradesh for commercial vehicles. Further, the said investment has given various business advantages to the assessee. Therefore, we are of the considered opinion that the AO is erred in treating the investment in equity instruments is not for the purpose of business of the assessee. Ld.C....