TMI Blog2013 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... income - Nexus between huge borrowings made by the assessee to the tune of Rs.4.59 crores with the business – Given interest free advances of Rs.1.13 crores – Held that:- In the immediate preceding year i.e. 2006-07, assessee had the same activities and interest on borrowings of Rs.3.70 crores had been allowed by the AO which means that AO accepted the nexus of borrowings with the business activities. Therefore, in the current year, no disallowance of expenses can be made in relation to opening balance of Rs.3.70 crores. The disallowance can only be made in relation to interest free advances given by the assessee. Therefore, disallowance has to be made only in relation to such interest free advances @ 14.5% as done in earlier year. Partly allowed in favour of assessee - ITA No.6233/Mum/2010 - - - Dated:- 3-8-2012 - D. Manmohan and Rajendra Singh, JJ. Appellant Rep by: Shri Tarun Rohtagi Respondent Rep by: Shri N. Sathya Moorthy ORDER Per: Rajendra Singh: This appeal by the assessee is directed against the order dated 2.6.2010 of CIT(A) for the assessment year 2007-08. The assessee in this appeal has raised disputes on two different grounds which relate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is that the assessee had not earned any income from the units of mutual fund, and, therefore, no disallowance could be made under section 14A. For this purpose, assessee has placed reliance on the decision of the Tribunal in the case of Ascent Tradecom Private Limited vs. DCIT in ITA No.6194/M/2006. In the said case, the Tribunal held that when there is no income received from the investment, no disallowance of expenses could be made under section 14A. The Tribunal placed reliance on the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Delite Enterprises in Income tax Appeal No.110/2009 dated 26.2.2009. In the said case, the assessee had borrowed funds which had been introduced in the partnership firm. Since income from partnership firm was exempt, the claim of deduction on account of interest had been disallowed. The Tribunal had allowed the claim of the assessee. In appeal the Hon'ble High Court of Bombay observed that since there was no profit in the relevant assessment year the question raised did not arise. The Tribunal in case of Ascent Tradecom Private Limited (supra), observed that though the Hon ble Court had not decided the issue, the revenue had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an authority for what it actually decides and not what may be remotely or even logically follow from it and that a decision on the question which has not been argued cannot be treated as a precedent. These judgments had not been brought to the notice of the Tribunal in case of Ascent Tradecom Private Limited (supra). In view of these judgments, the decision of the Tribunal cannot be followed. In case of CIT vs. Delite Enterprises (supra), the Hon ble Court had not decided the issue as to whether expenses could be disallowed under section 14A when no income has been earned and, therefore, the said judgment cannot be considered as binding precedent in other cases. 4.2 In the present case, the assessee had made investment in the units of mutual fund income from which if received was exempt from tax. Therefore, whether any income has been earned or not expenses incurred in relation to the said investment which is not going to result into any taxable income has to be disallowed under section 14A. The Hon'ble Supreme Court in case of Rajendra Prasad Moody (115 ITR 519) have held that even if there is no income received from investment, interest on borrowed funds utilized from inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of liaisoning money or commission. The income earned by the assessee was miscellaneous income of Rs.10,451/- and insurance income of Rs.1,23,000/-. The AO further noted that the assessee had unsecured loans of Rs.4,59,03,660/- and a sum of Rs.3,87,54,482/- was shown under the head current assets, loans and advances in the balance sheet as on 31.3.2007. The assessee had however had not shown any interest income in the P L account. The AO obtained details of current assets and advances from which it was noted that the assessee had given advances of Rs.1,13,13,641/- on which no interest income had been earned. The AO also observed that the assessee had nowhere mentioned that these advances had been given for the purpose of business. Considering the nature of income and lack of any nexus between borrowed funds and business of the assessee, the AO concluded that the borrowings had not been used for the purpose of business. The AO, therefore disallowed the claim of interest of Rs.59,51,911/-. The AO further observed that the assessee had given advance of Rs.1,13,13,641/- to various parties on which no interest was received nor there was any material to link advances with any business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the orders of authorities below and placed reliance on the findings given in the respective orders. 5.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding disallowance of interest under section 36(1)(iii). The assessee was engaged in the business of syndication activities and was also enjoying income from insurance business. The assessee claimed deduction of interest expenditure of Rs.59,51,911/-. The AO held that syndication activities were of the nature of liaison activity resulting into commission income. The assessee had only received miscellaneous income of Rs.10,451/- and commission on insurance of Rs.123,000/-. Therefore, there was no nexus between huge borrowings made by the assessee to the tune of Rs.4.59 crores with the business of the assessee. Assessee had also given interest free advances of Rs.1,13,13,641/- on which no interest income had been earned. The AO had, therefore, disallowed the entire interest. CIT(A) confirmed the disallowance. The case of the assessee is that net new loan taken by the assessee during the year was only Rs.42.00 lacs and balance loan of Rs.3.70 crores was coming from earlier year in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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