TMI Blog2019 (2) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) in restricting the addition to ₹ 16,53,617/- out of the addition made by the Assessing officer of ₹ 2,89,72,984/- u/s 14 A read of the Income-tax Act, 1961 (in short 'the Act') read with Rule 8D of the Income Tax Rules, 1962. 3. The brief facts relevant to the issue are that Assessing officer noticed that the assessee had earned tax exempt dividend income of ₹ 67,05,197/- during the year. He invoking the provisions of seciton14A read with rule 8D of the I.T. Rules made the disallowance of ₹ 2,89,72,984/- in respect of expenditure incurred for earning of tax exempt income.. 4. However, in appeal, the Ld. CIT(A) noted that the assessee was possessed of sufficient own funds / interest free funds to meet the investments whereupon the tax exempt dividend income was earned. He, relied upon the decision of the Jurisdictional High Court in the own case of the assessee titled as CIT Vs. Kapsons Associates (2016) 381 ITR 204 (P H), wherein, it has been held that if the assessee has availability of own sufficient funds to make the investment, then the presumption would be that investment has been made from own funds and no disallowance u/s 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no merit in the ad hoc disallowance made by the CIT (Appeals) ₹ 5,00,000/-. Consequently, ground of appeal raised by the Revenue is partly allowed and ground raised by the assessee in cross-objection is allowed... --- Taking note of the aforesaid finding of fact, the High Court has dismissed the appeal of the assessee observing as under: In the present case, after examining the balance-sheet of the assessee, a finding of fact has been recorded that the funds utilized by the assessee being mixed funds, therefore, the interest paid by the assessee is also an interest on the investments made. Such being a finding of fact, we do not find that any substantial question of law arises for consideration of this Court. After going through the records and applying the principle of apportionment, which is held to be applicable in such cases, we do not find any merit in Civil Appeal No. 1423 of 2015, which is accordingly dismissed. 6. We find that the aforesaid decision of the Hon'ble Supreme Court in the case of Avon Cycles Ltd Vs. CIT (supra) with the lead case being Maxoppp Investment Ltd Vs. CIT (supra) has come into consideration before the Coordinate B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause it is the ratio and not the propositions which are relevant and binding. It is, therefore, not proper to regard every word, clause or sentence occurring in a judgment of the Court as containing a full exposition of the law. Judgments of the Courts should not be construed as statutes. They must be read as a whole and observations made therein should be considered in the light of the facts and circumstances of that case and the questions before the Court. A decision of the Court takes its colour from the questions involved in the case in which it is rendered. In the case of CIT vs Sun Engineering Works Pvt. Ltd. 198 ITR 297(SC), the Hon ble Supreme Court observed that Judgements must be read as a whole and observations in judgements should be considered in the context in which they are made and in the light of the question that were before the court: It is neither desirable nor permissible to pick out a word or a sentence from the judgement of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgement must be read as a whole and the observation from the judgement have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led in the case of Avon Cycles Ltd. (supra) and taking note that the fact in that case was that the funds utilized by the assessee were mixed funds, the Hon'ble Apex Court held that the principle of apportionment was to be applied and, therefore, dismissed the appeal of the assessee. The same is evident from a bare reading in the case of Maxopp Investment Ltd. (supra) and more specifically para 42 of the said order wherein the case of Avon Cycles Ltd. (supra) has been dealt with and which is reproduced again hereunder: 40. Civil Appeal No. 1423 of 2015 is filed by M/s. Avon Cycles Limited, Ludhiana, wherein the AO had invoked section 14A of the Act read with Rule 8D of the Rules and apportioned the expenditure. The CIT(A) had set aside the disallowance, which view was upturned by the ITAT in the following words: ...Admittedly the assessee had paid total interest of ₹ 2.92 crores out of which interest paid on term loan raised for specific purpose totals to ₹ 1.70 crores and balance interest paid by the assessee is ₹ 1.21 crores. The funds utilized by the assessee being mixed funds and in view of the provisions of Rule 8D(2)(ii) of the Income Tax Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the investment, which was neither the question raised before the apex court and therefore not addressed by it also. 13. Going further from here we find that the presumption theoory was upheld by the Hon'ble Supreme Court in the case of Hero Cycles Pvt. Ltd. (supra) wherein on the issue of disallowance of expenditure u/s.36(1)(iii) of the Act on interest free advance made to Directors, the Hon'ble Apex Court held that in view of the findings of fact that the assessee had sufficient credit balance in its bank account for making the impugned advances and had sufficient own interest free funds, the assessee company could in any case utilize those funds for giving advances to its Directors. The findings of the Hon'ble Apex Court at para 16 of this order to this effect are as under: 16. Insofar as the loans to directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the bank account when the said advance of ₹ 34 lakhs was given. Remarkably, as observed by the CIT(A) in his order, the company had reserve/surplus to the tune of almost ₹ 15 crores and, therefore, the assessee company could in any ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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