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TMI Blog2015 (1) TMI 1065X X X X Extracts X X X X X X X X Extracts X X X X ..... l and Revenue has not come in appeal. Briefly stated, assessee-company is engaged in the business of development, maintenance and consultancy in respect of infrastructure facilities for information and technology and related activities. It has filed return of income for AY.2007-08 declaring total income of Rs. 13.63 Crores which was processed u/s.143(1) of the Income Tax Act (Act). It has also disclosed book profits u/s.115JB at Rs. 31,47,46,170/-. Since tax payable on book profits was more than the tax payable on normal taxable income, tax liability u/s.115JB was adopted u/s.143(1). Even after making certain additions in the assessment, income was determined u/s.115JB only. However, assessee preferred appeals before the CIT(A) on various issues. The issues on which assessee is aggrieved are considered in this appeal. Ground No.1 being general in nature does not require any adjudication. 4. Ground No.2 is disallowance of interest expenses amounting to Rs. 4,64,00,000/-. The facts are that assessee has made investments of Rs. 46,40,12,844/- in the form of long term investments and mutual funds. The investments are primarily into subsidiary sister-companies. Assessing Officer consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital loss against the capital gains income during the year. Facts are that the appellant claimed short term capital loss on the sale of mutual funds at Rs. 15,66,51,356/-. This short term capital loss was set off against short term capital gain of Rs. 52,82,951/- and long term capital gain of Rs. 28,33,9 4,489/-. The appellant also claimed exemptions under sections 10(34) and 10(35) with respect to dividend income received amounting to 15,64,95,712/-. By giving the following reasons, Assessing Officer disallowed the claim of capital loss: "4.1. The above explanation of the assessee is considered. The provisions of Sec. 94(7) have been brought into the statute by the Finance Act, 2001 in order to curb the creation of short term losses. The scope and effect have been explained by the Departmental circular No.14 of 2001 as under: "The existing provisions did not cover a case where a person buy securities (including units of a mutual fund) shortly before the record date fixed for declaration of dividends, and sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this transaction is 23.03.07. Similarly, the assessee also has purchased 1,15,65,668 units on 19.12.06 for a consideration of Rs. 25 Crores and sold them on 26.03.2007 for a consideration of Rs. 17,48,14,l16/-. The record date for this transaction is 23.03.07. It can be observed that the assessee has sold the units just three days from the record date. The purchase of the units are on 08.12.06 and 19.12.06 ie., just a few days more than the period of 3 months before the record date. The assessee has claimed the dividend as exempt and has set off the loss against long term capital gains which cannot be permitted in the face of the nature of transaction. The loss has to be reckoned as 'cost' in the process of earning of dividend. 4.2. In view of the above facts and circumstances, the short term capital loss claimed by the assessee cannot be set off against long term capital gains. Hence, the short term capital gains of Rs. 52,82,951/- and long term capital gains of Rs. 28,27,89,471 + Rs. 6,05,018 = Rs. 28,33,94,489/- have to be brought to tax". 6.1 Ld.CIT(A) confirmed the adjustments made by A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores and the same were sold on 26.3.2007 for Rs. 17,48,14,116/-. The appellant claimed the dividend received as exempt and set off the loss against long term capital gains. Accordingly, as per Section 94(7), the loss on these transactions has to be disallowed as per specified in that section. 7.4 In find that the Assessing Officer has treated the loss as cost of earning dividend income. I find that such an interpretation is incorrect as capital loss cannot be equated to cost of earning dividend. Whereas, in principle, I agree that Section 94(7) is applicable. However, I direct the Assessing Officer to apply the section and disallow loss only to the extent of dividend or income received on such securities as specified in the above section. Capital loss is not to be disallowed as cost under section 14A. This ground is accordingly decided partly in favour of revenue. 6.2 Ld. Counsel submitted that the actions of the Assessing Officer and CIT(A) are not according to the law. It was submitted that the stipulations made out in Section 94(7) have not been fulfilled as one of the conditions are not satisfied. It was already held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ths after the record date; (iii) the dividend or income received or receivable should be exempt. In the event that these three conditions were fulfilled, the loss, if any, arising from the purchase or sale of securities or units, had to be ignored for the purpose of computing the income chargeable to tax, to the extent such loss did not exceed the amount of dividend or income received or receivable. The sale of the units had taken place after the expiry of a period of three months from the record date. Hence, the second condition spelt out for the applicability of subsection 7 would not come into force. The conditions prescribed in clauses (a), (b) and (c) of sub-section 7 were cumulative in nature. Thus, section 94(7) would not be applicable". 7.2 Similarly, Hon'ble High Court of Delhi in CIT Vs. Shambhu Mercantile Limited (supra) has considered the similar issue and held as under: "A plain reading of the provision of s. 94(7) indicates that the conditions are cumulative. The reason being that cls. (a) and (b) of sub-s. (7) of s. 94 provided for a statutory period both prior to and after the record da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et out to five companies viz, HSBC EDP India Pvt Ltd (2,36,776 sft), Motorola India Pvt Ltd (1,52,917 sft), Deloittee Consulting India Pvt Ltd(1,28,200 sft), Deloitte Touche Audit Services India Pvt Ltd (47,680 sft) and Deloitte Support Services India Pvt. Ltd., (10,070sft). The phase-III has been completed in the previous year relevant to the asst. year 2007-08. In phase-Ill, three towers have been developed as three separate, built to suit (BTS projects) infrastructure projects. HSBC occupies one tower fully. Motorola India occupies one tower of project fully. The third one is occupied by the three Deloitte Group of companies. AO was of the opinion that CBDT has issued notification No.246/2007 in F.No.178/79/2007 -ITA-I dated 28.09.2007 for the Industrial Park consisting of the above said three towers and the notification appears to have been obtained on an 'automatic approval' route. AO was of further opinion that as per the scheme of 'automatic approval' (vide SO354 (E) dated 01.04.2002), each industrial park shall have minimum 30 no. of units and no single unit shall occupy more than 50% of the allocable industrial area / park. As company has developed three se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongly considered the same as under Automatic route. 8.2 The Ld.CIT(A), however, without examining any of the issue rejected the contention of assessee by briefly stating as under: 8.2 Without going into other details, I find that the fundamental conditions that there should be a minimum of 30 units has not been fulfilled by the appellant. The second condition that each unit shall not occupy more than 50% of the allocable area was also not been fulfilled by the appellant. The Assessing Officer has clearly written these facts in his order quoted above. Since the appellant has not fulfilled the essential requirement, I confirm the denial of deduction under section 80IA. 8.3 It was the contention of the Ld.Counsel that there are two methods of getting approval from Ministry of Commerce and Industry. Automatic route where the stipulation of 30 units is prescribed and Non-automatic route where such stipulation was not there. High Power Committee in which CBDT Chairman is also a Member, examined the issue and granted approval to the assessee. Referring to the scheme and letter of allotment vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial Assistance, Department of Industrial Policy and Promotion in the Ministry of Commerce & Industry, Udyhog Bhawan, New Delhi- 110011. (3) The Secretariat for Industrial Assistance referred to in subparagraph (2) shall, upon receipt of application, give acknowledgement for receipt of such applications along with, registration number allotted by such Secretariat. (4) Every application under sub-paragraph (1) shall be accompanied by a fee of six thousand rupees payable by a demand draft drawn in favour of Pay and Accounts Officer, Department of Industrial Development payable at State Bank of India, Nirman Bhawan Branch, New Delhi-110011. (5) All applications made under sub-paragraph (1) and eligible for Automatic approval in accordance with paragraph 6 shall be disposed of within fifteen days of making such application and the decision for such approval shall be communicated to the applicant immediately on disposal of such application. 6. Criteria for automatic approval - An undertaking which seek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Foreign Investment Promotion Board or Reserve Bank of India, or any authority specified under any law for the time being in force, as the case may be. However, assessee's application is not under Automatic Approval Scheme whereas the same was under Non-automatic Approval Scheme under para 7. Para 7 is as under: 7. Non Automatic Approval: (1) All applications not eligible for Automatic approval under paragraph 6 shall require the approval of Empowered Committee, constitute by the Central Government and all such applications shall be placed before the Empowered Committee within fifteen days of receipt of applications. (2) The Empowered Committee shall consist of the following, namely:- (a) Secretary, Department of Industrial Policy and Promotion, Government of India Chairman (b) Chairman, Central Board of Direct Taxes, Member Government of India, or his representative (c) Secretary, Department of Urban Development, Government of India, or his representative Member (d) A representative of the State Government to which the project relates Member (e) Joint Secretary, Department of Industrial Policy and Promotion, Government of India Member Secretary Provided that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section Division Group Class A 8 89 892 - Data processing, software development and computer consultancy B 8 89 893 - Business and management consultancy activities C 8 89 894 - Architectural and engineering and other technical consultancy activities. v) Percentage of allocable area earmarked for industrial use 100% vi) Percentage of allocable area earmarked for commercial use Nil vii) Proposed number of industrial units 5 Units viii) Total investment proposed Rs.1,69,00,19,108/- ix) Investment on built up space for industrial use Rs.1,55,29,28,658/- x) Investment on Infrastructure Development including investment on built up space for industrial use Rs.1,60,79,28,658/- xi) Expected date of commencement of the Industrial Park 31-03-2006 Not only that, the CBDT has also notified vide notification dt.28th September, 2007, extracting the same table, which was in the approval letter, with a further condition as under: "4. No single unit referred to in column (2) of the Table given in subparagraph (b) of paragraph 6 of S.O.354(E) dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Years. Accordingly, this ground is allowed for statistical purposes. 14. Ground No.3 pertains to issue of deduction u/s.80IA of the Act for an amount of Rs. 4,67,83,783/-. This issue is also similar to Ground No.4 considered herein above in ITA No.1515/Hyd/2011 (AY.2007-08). For the reasons stated therein, the Assessing Officer is directed to allow the deduction u/s.80IA subject to verification of computation of income and eligible amount. 14.1 With these directions, appeal is allowed for statistical purposes. ITA No.50/Hyd/2014 (AY.2009-10): 15. In this appeal, assessee has raised three grounds. Out of which Ground No.1 is general in nature. Ground No.3 is consequential in nature for levy of interest. 16. The only material ground is with reference to the disallowance of deduction u/s.80IA. Facts are similar to the issue considered herein above in ITA No.1515/Hyd/2011 (AY.2007-08). For the reasons discussed therein against Ground No.4 in that order, we direct the Assessing Officer to grant deduction u/s.80IA subject to verification of computation of income and deduction u/s.80IA. Hence, this ground is considered as 'allowed. 16.1 With these directions, appeal is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowance made out of interest expenditure on the reason that funds have been diverted and invested in sister-concerns. This issue is similar to the issue considered herein above in ITA No.1515/Hyd/2011 (AY.2007-08) wherein this issue was set aside to the file of Assessing Officer. However, as noticed from the order of the CIT(A), CIT(A) has considered the facts. Based on the order of ITAT for AY.2003-04 and the order of Assessing Officer giving effect to the order dt.30-08-2010, he analysed the facts and considered the whole issue as under: 5.2 I have considered the facts and evidences carefully. As evidenced from the submissions of the appellant, the interest expenditure incurred by the appellant is Rs. 13,73,99,903. The investments as on 31-3-2009 relevant to the A.Y.2009-10 is Rs. 30,68,12,863. The total amount of term loan as on 31-3-2009 obtained various banks is Rs. 136,60,15,135. From the submissions, it is clearly evident that the appellant is having Share Capital Reserves and Surplus as on 31-3-2009 i.e. relevant to A.Y.2009-10 of Rs. 227,15,41,289, which were in excess of investments ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; "Para 7.....the investment made by the assessee is in its subsidiary company was out of the huge amount of reserves and surplus of over Rs. 21 croes as on 31-3-2002. He also submitted that the assessee made a profit of Rs. 8.52 crores during the year. Hence, the investment made by the subsidiary company is out of its own funds and not from out of the interest bearing funds and as such the lower authorities were not justified making any disallowance out of the interest expenditure claimed by the assessee. It was also submitted that the secured loans have been used mainly for the purpose of purchase of fixed assets and not for the purpose of investment in the subsidiary company. In this regard, he relied on the case of SA Builders vs C/T (288 ITR 1), wherein it was held that what was relevant was whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount as advanced for earning profit. It was also held that in that case, that once it is established that there was nexus between the expenditure and purpose of the business, the interest expenditure cannot be disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is incurred on grounds of commercial expediency. The expression 'commercial expediency' is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. In the facts of the current case, having satisfied the above condition of commercial expediency, the Company should be eligible for deduction under Section 36(1)(iii) of the Act. Without prejudice to the above, even assuming that the Appellant had utilized borrowed funds, it is clear that the test of 'commercial expediency' as laid down in SA Builders above, was satisfied in the present case. The Apex Court has held that where the holding company has a deep interest in its subsidiary for business purpose, the taxpayer holding company is ordinarily entitled to deduction of interest on borrowed funds." 5.4.1 In the case of CIT Vs Reliance Communications & Infrastructure Ltd 71 DTR 237 (Bom), it was held as under: "... it was held that investments made in the wholly owned subsidiaries and money advanced were for furthering the business of the assessee and are consistent with the j ..... X X X X Extracts X X X X X X X X Extracts X X X X
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