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TMI Blog2006 (11) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to rework the income on the basis of disallowance of Rs. 13.70 lakhs as expenditure towards earning of dividend, as against Rs. 1,26,11,357 treated by the Assessing Officer as expenditure incurred towards earning of dividend income under section 14A of the Income-tax Act." 2. Briefly stated the facts of the case are that the assessee furnished its return declaring loss of Rs. 1,28,24,439. During the course of assessment proceedings it was noticed that the assessee had claimed dividend income of Rs. 50,25,603 and interest on debentures of Rs. 70,250 as examined under sections 10(33) and 10(23G), respectively. The assessee was asked to explain why the disallowance out of interest and other administrative expenses should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted income comprising of dividend and interest on debentures. On the perusal of the Profit and Loss Account, it was noted that the assessee had debited interest at Rs. 105.73 lakhs. Considering the facts in detail, it was opined that the assessee had no business activity during the year as income arose primarily by way of dividend income, interest on debentures and other incomes which were held as long-term investment. He worked out the total amount of expenditure in relation to income not includible in the total income under section 14A as under : (a)Administrative and other expenses - Rs. 1,73,000 (b)Loss on borrowed stock relatable to this assessment year - Rs. 22,24,560 (c)Interest paid to M/s. Reliance Capital Ltd. - Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Finance Ltd. v. Dy. CIT [2006] 101 ITD 151 (Delhi), it was contended that the disallowance was to be made with reference to investment, income of which was exempt irrespective of the fact that whether or not it fetched dividend in this year. In the opposition, the learned counsel for the assessee took us to page 63 of the Paper Book containing detail of interest of Rs. 1,05,72,637 which was paid to Reliance Capital Limited. By referring to pages 60 to 62 of the Paper Book, being the copy of account of the Reliance Capital Limited in the books of assessee from 1-4-1997 to 31-3-2000, it was argued that the payment of interest related to the borrowings made from Reliance Capital Limited. He further took us to page 64 of the Paper Book to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is "in relation to the incomes which do not form part of the total income of the assessee". Here it is relevant to note that what is contemplated in this section for making disallowance is the expenditure as relatable to the income which is exempt from tax. Merely because the assessee did not earn dividend out of investment in certain shares that would not push the case out of the purview of section 14A. The restriction of deduction as per this section is in relation to any income which does not form part of total income. The narrow interpretation given by the learned CIT(A) in considering only those investments on which dividend was actually earned cannot be upheld. We, therefore, hold that the expenditure has to be considered for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Book divulging the utilisation of funds received from Reliance Capital Limited. On a pointed query from the Bench the learned AR could not explain as to whether or not such chart of utilisation of funds was placed before the Assessing Officer for examination of the matter. Obviously if the funds have been utilised for any purpose other than the earning of income which is exempt from tax, the disallowance of interest for the purpose of section 14A is not tenable. If on the contrary, the borrowed interest bearing funds have been utilised, wholly or partly, in the purchase of assets, income from which is exempt under section 10, then the interest on whole or part of the amount so utilised has to be considered for making disallowance under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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