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2007 (10) TMI 446 - AT - Income TaxDisallowance of interest expenditure - incurred loss - Not received any dividend income during the year under consideration - provisions of section 14A did not apply - Expenditure incurred in relation to income, not includible in total income - stand of the revenue is that whether there is actual exempted income or not during the year under consideration, since the assessee had incurred expenditure for making investment in that exempted income this expenditure cannot be allowed. HELD THAT:- In the instant case, assessee had made certain investment in shares though no dividend has been received. By virtue of section 10(33) dividend income referred to in section 115-O does not form part of the total income. Section 115-O is a special provision related to tax on distributed profit of domestic companies. Section 115-O is not in tandum with section 10(33). The additional tax under section 115-O become leviable in the hands of the company if such dividend is exempted in the hands of the shareholders. If the assessee earned income which is not includible in the total income, in that case the expenditure could be disallowed u/s14A because it speaks of expenditure incurred by the assessee in relation to income which does not form part of the total income. In other words assessee has earned income which forms part of the total income. Reading of section 14A makes it clear that while computing the income under Chapter IV deduction will not be allowed with regard to expenditure incurred by the assessee in relation to an income which does not form part of the total income under the Income-tax Act. The decision relied by the learned DR in the case of Everplus Securities & Finance Ltd.[2006 (3) TMI 229 - ITAT DELHI-H], the case does not support the view canvassed by the learned DR. This was the case wherein actually dividend income was earned. The question was in such a situation if the interest bearing fund invested in shares which yielded dividend income Assessing Officer can disallow interest paid on such loans by invoking section 14A. In the instant case of the assessee the admitted position is that there is no dividend income earned. Thus, this ground by the assessee is allowed. Interest expenses treated as capital expenditure incurred towards acquiring controlling interest in subsidiary company - It is the case of the assessee that recently the Tribunal, in the case of Birla Group of Holdings Ltd.[2006 (10) TMI 250 - ITAT MUMBAI], held that the interest expenses cannot be added to the costs of investments of which the direction to that effect was made in the assessment order. Assessee has produced a copy of the order of the Tribunal referred to above. Assessing Officer while giving effect to the order of the Tribunal may keep this decision in mind and the additional ground may be dealt with accordingly in the light of the decision referred to above. In the result, appeal by the assessee is allowed in part for statistical purpose.
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