TaxTMI 
TaxTMI 
2015 (1) TMI 964
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....unds of appeal." 3. The grounds raised in the Assessee's Cross Objection read as under:- "1. That there was no justification on the part of the Ld. CIT(A) to sustain the addition of Rs. 50,000/- under section 14A of the Income Tax Act. 2. That without prejudice to ground No. 1 above the addition of Rs. 50,000/- sustained is very excessive." 4. Briefly stated the facts are that the assessee company is providing training to media professionals and the return of income for the A.Y. 2009-10 was e-filed on 31.8.2009 at a loss of Rs. 24,940/-. The assessment u/s. 143(3) was completed on 30.6.2011 and the disallowance of Rs. 17,77,733/- was made u/s. 14A of the I.T. Act read with Rule 8D(2)(iii) of the I.T. Rules, 1962. The assessee had investments of Rs. 35,55,46,602/- in subsidiary companies and the assessee had not made any disallowance u/s. 14A of the I.T. Act, 1961 in its return of income. The AO completed the assessment after disallowing Rs. 17,77,733/- being 0.5% of the above investments vide his order dated 26.9.2011 passed u/s. 143(3) of the I.T. Act, 1961. 5. Against the aforesaid assessment order dated 26.9.2011 passed under section 143(3) of the I.T. Act, 1961, assessee a....
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....A.Y. 2008-09) in which it has been held if no expenditure is attributable to earning dividend income, the no disallowance u/s. 14A could be made. 7.1 Besides the above, assessee's counsel further relied upon the following case laws:- (i) 360 ITR 68, CIT vs. Hero Management Service Ltd. (Jurisdictional Delhi H.C.), in which it was held that no satisfaction as required by Rule 80 had been recorded by the Assessing Officer and accordingly, no disallowance could be made u/s 14A. (ii) 363 ITR 474, CIT vs. Torrent Power Ltd. (Gujarat H.C.), in which it was held that disallowance u/s 14A requires a finding of incurring of expenditure and where it is found that for earning exempted income, no expenditure had been incurred, disallowance u/s 14A will not stand. (iii) 336 ITR 434, CIT vs. Metalman Auto P Ltd. (P & H High Court), in which it was held that disallowance u/s 14A requires a finding of incurrence of expenditure for earning the exempted income and in case no such expenditure has been incurred, the disallowance u/s 14A is not justified. (iv) 339 ITR 632, CIT vs. Reliance Industries Ltd. (Bombay H.C.), in which it was held that where there was no fact of having incurred any expen....
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....nvestments in shares were only in two subsidiary companies. Such investments in subsidiary companies were made by the Appellant to acquire/promote the subsidiary companies which are in the media business and were not made purely for earning dividend income. Neither any dividend income has been earned since the time such investments were made in the shares of the subsidiary companies. Hence, such investments cannot be considered for disallowance u/s 14A read with Rule 80 as has been held by ITAT Chennai Bench in the case of EIH Associated Hotels vs. Dy. CIT. Relevant portion from such judgment from para 6 are reproduced below: "We are of the considered opinion that the investments made by the assessee in the subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. A perusal of the order of the CIT(Appeals) shows that out of total investment of Rs. 64,18,19,775/-, Rs. 63,31,25,7151- is invested in wholly owned subsidiary. This fact supports the case of the assessee that the assessee is not into the business of investment and the investments....
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....enditure it is not necessary that exempt income is earned. Many times expenditure is incurred but not income or even negative income (loss) is earned. As expenditure is allowed even if no income was earned in taxable income cases, in reverse case the expenditure should be disallowed though no exempt income was earned. 9. We have heard both the counsel and perused the records. We have also gone through the orders of the lower authorities, Synopsis, Paper Book filed by the assessee and the case laws relied upon by the assessee. We find that Ld. CIT(A) has adjudicated the issue as under:- "3. Ground No. 1 & 2 are against the disallowance of Rs. 17,77,733/- u/s 14A and ground No. 2 specifically states that the disallowance made is excessive. As per assessment order, the AO had made this disallowance on the presumption that the appellant had incurred expenses on management and on meeting of the board of directors etc. which can be attributed to the appellant's exempt income. The appellant's AR's submission during the appellate proceedings is that no expenses was incurred as remuneration to the directors or as meeting fee paid to the directors. As per the P&L A/c, the expen....
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....the Ld. CIT(A) to sustain ad-hoc disallowance of Rs. 50,000/- by holding that "the only expenses which can be attributed to exempt income likely to be earned in future are the auditor's remuneration and legal & professional charges". The auditor's remuneration and legal & professional charges incurred for maintenance of statutory books and its audit etc. were required to be incurred irrespective of whether the Company had any income or not and hence, there was absolutely no basis for considering a part of such expenditure towards earning of exempt income. In this connection, reliance is placed on Gujarat High Court judgment in the case of CIT vs. Suzion Energy Ltd. 354 ITR 630, in which the Court confirmed the deleting of disallowance u/s 14A in respect of interest expenses incurred for investments in subsidiaries and administrative expense such as staff salary of corporate office, audit fees, building rent and communication expenses. In view of the above, the cross objection filed by the assessee deserve to be allowed. 9.2 We also find that the case law cited by the Ld. Counsel of the assessee i.e. Hon'ble Jurisdictional Delhi High Court judgment dated 5.9.2014 in the cas....
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....ake any manufacturing activity themselves. He referred to the FIPB approval vide letter dated 30.03.2005 granted by Government of India, Ministry of Finance permitting them to make investment in Ambuja Cement Ltd. by acquiring majority stake from the earlier shareholders. Thereupon, the respondent-assessee had purchased shares in the said company of Rs. 1850.91 Crores. Reference was then made to the expenditure as per the financial statement. Section 3 of the Act was elucidated upon to observe that business would be established when the assessee was ready to commence. Revenue expenditure incurred after setting up business should be allowed under Section 37 of the Act but expenditure incurred prior to setting up of business cannot be allowed. The CIT (A) accordingly held:- "5.6 In view of the above discussions, I hold that the appellant is engaged in the business of holding of investment is entitled to claim expenditure provided there is a direct connection between expenditure incurred and business of the assessee company. In the instant case. the expenditure incurred is on salaries of employees of the assessee company and other operating expenses of the company. The appellant has ....
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..... Thereafter, the CIT(A) has referred to the contentions of the assessee that they had not earned dividend income and therefore, Section 14A of the Act was not applicable. The CIT(A) did not agree that as no exempt income was "claimed", no disallowance under Section 14A was warranted. The CIT(A) relied on the decision of Special Bench of the Tribunal (Delhi) in the case of Cheminvest Ltd. Vs. ITO., [2009] 317 ITR (A.T.) 86. Reference was made to Maxopp Investment Ltd. Vs. CIT, [2012] 347 ITR 272 to observe that Rule 8D of the Income Tax Rules, 1962 was not applicable in the assessment year 2007-08. Judgment of the Bombay High Court in Godrej and Boyce Manufacturing Co. Ltd.Vs. DCIT, [2010] 328 ITR 81 was also quoted. As per Maxopp Investment Ltd. (supra), the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which did not form part of total income had to be first ascertained and in case, the assessee claimed that no expenditure was incurred, the Assessing Officer should verify the correctness of the claim. Where the Assessing Officer was satisfied that no expenditure was incurred, no disallowance should be made under Section 14A. ....
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.... of specific provisions contained in Section 14A and despite the fact that there is no exempt income that expenditure incurred was for holding and maintaining Investment. 5.15 Therefore, by applying the above judicial decision to the facts of the instant case, I find admittedly and indisputable, entire expenditure incurred to the tune of Rs. 8,75,35,452/- has been incurred for investment and hence in the light of the above factual position, the entire expenditure is not allowable in view of Section 14A of the Act. Thus, disallowance made by the Assessing Officer is confirmed though on a different ground and as such, the appeal preferred by the appellant is dismissed". 11. The CIT(A) did not refer to the factual matrix in his order for the assessment year 2008-09 but applied his earlier order dated 02.08.2012 for the Assessment Year 2007-08. We may note that for the Assessment Year 2008-09, Rule 8D as per the decision in the case of Maxopp Investment Ltd. (supra) is applicable. The said Rule was not invoked. The reasoning given by the CIT(A) reads thus: "4....While deciding the appeal for A.Y. 2007-08, vide my order dated 01.08.2012, I have given the finding that AO was not corre....
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....Revenue. Thus, we had asked Sr.Standing Counsel for the Revenue, to state in his own words, their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to make the said addition. Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondentassessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A. 14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Inc....