TMI Blog2015 (7) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 lacs. There is no other dispute involved in its appeal on facts and figures narrated in the CIT(A) order comprising of Assessing Officer’s findings hereinabove. We observe in these circumstances that larger interest of justice would be met in case a lumpsum adhoc disallowance of ₹ 2.5 lacs is made in these peculiar facts with a rider that the same shall not be treated as a precedent. Ordered accordingly. The assessee gets part relief. The Assessing Officer is directed to pass a consequential order. - Decided partly in favour of assessee. - ITAs No. 1816 and 1904/Ahd/2011 - - - Dated:- 25-6-2015 - Shri Anil Chaturvedi And Shri S. S. Godara,JJ. For the Petitioner : Shri V.K. Singh, Sr.D.R., For the Respondent : Shri P.M. Mehta with Shri V.R. Chocksi, A.R. ORDER Per S. S. Godara, Judicial Member These cross appeals filed by assessee and the Revenue for A.Y.2006-07, arise from order of the CIT(A)-VI, Ahmedabad, dated 18.05.2011 passed in case no.CIT(A)- VI/DCIT.Cir.1/371/09-10, in proceedings under section 143(3) of the Income Tax Act, in short the Act . 2. The assessee s substantive grounds raised in its appeal ITA 1816/Ahd/2011 read as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to why disallowance u/s. 14A should not be made. In this regards, the assessee company states as under: 2.1 The assessee company states that it has, made investments by utilizing its own funds. The owned funds i. e. the interest free funds of the assessee company are ₹ 1531.95 crores. The assessee company has total investments of ₹ 348.1 crores. Further, most of the said investments are made in the foreign subsidiaries of the assessee company or strategic investments in group companies. The income received, if any, from foreign subsidiaries is taxable and therefore, the provisions of sec.14A shall not apply with reference to the same. 2.2 As regards the all the other investments, it is submitted that they represent the long term strategic investments in group companies. The investments in such subsidiary company are not for earning any exempt income. 2.3 The said investments do not require constant monitoring and therefore, no major efforts are required for the same. Therefore the administrative expenses are not related with the dividend income. No specific attempt was required for earning of dividend income. Accordingly no part of the administrative expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A are clearly applicable to the assessee. In view of the same, the disallowance is computed as below: Calculation of Average Value of Investments: Details Opening Closing Investments 1302595622 3253453680 Average value of investments 2278024651 Direct Expenses Incurred Disallowance of interest: Interest paid x Average value of Investment Average value of total assets 2098553 x 2278024651 =138287 34569750000 Investment as on 31/03/2007 ₹ 1302595622 Investment as on 31/03/2006 Rs.3253453680 Average value of Investment Rs.2278024651 Value of Assets Value of Assets as on 31/03/2007 Rs.32394100000 Value of Assets as on 31/03/2006 Rs.36745400000 Average value of assets ₹ 34569750000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax exempt income of the assessee, which is ₹ 24.42 lacs. 3.3 The disallowance made by the Assessing Officer comprises of Interest of ₹ 138287/- and Other Expenses of ₹ 113,90,123/-. With reference to the same, it is submitted that the impugned disallowance has been made without the Assessing Officer having any real reason for being satisfied in the manner required by Section 14A. 3.3.1 As regards the disallowance of Interest of ₹ 1,38,287/-, the Assessing officer has observed that the expenditure to the extent of ₹ 20.98 has been incurred which cannot be directly related to a certain income and therefore, he proceeded to make disallowance out of the said amount. In connection with the said observation of the Assessing Officer, it may be pointed out that the assessee has given details of Interest Expenses giving break-up of specific business purpose borrowing and general business purpose borrowing. However, the same cannot be interpreted to mean that the interest on general purpose borrowings was not related to earning business income. Further, in connection with the utilization of borrowed funds only: for the purpose of business, it may be impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtension of the business of the assessee company through separate subsidiary companies, so that concentrated efforts can be made for business development in specific area. 3.4 Apart from above, the decisions of Punjab Haryana High Court in the case of Hero Cycles Ltd. In ITA No.331 of 2009 should be considered, where in it has categorically held that even under Rule 8D of S. 14A, disallowance can be made only if there is actual nexus between tax-free income and expenditure disallowance under section 14A of the Act and in the case of appellant company no such nexus have been established or proved by the Income Tax Department. 3.5 without prejudice to above, the Assessing Officer failed to appreciate that the company has earned exempt income of ₹ 24.42 lacs. Therefore, disallowance, if any, made by him should not exceed the said amount. 3.6 Without prejudice to the forgoing, it may also be pointed out that the appellant has invested ₹ 5,38,75,0231- in Arvind Spinning Ltd. The said company is also foreign subsidiary of the appellant company and income from the said company is taxable in the hands of the shareholders. Therefore, the provisions of section 14A woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer is confirmed subject to following para-. Appellant submitted that investment in foreign subsidiary will not result in exempt income hence disallowance for the same cannot be made. I agree with the appellant since dividend from foreign company is taxable in India; an expense relating to this investment is not disallowable. Assessing officer will accordingly reduce the disallowance. As regards interest, appellant had borrowed funds on which interest was paid. While making investments, both borrowed funds as well as own funds were used hence one cannot say that borrowed funds were used only for business purpose and fresh capital raised was only used for investment. Even otherwise, assessing officer has taken only that part of interest paid for general borrowings not made for any specific purpose. Therefore In the absence of clear cut details of utilization of funds, the formula given in rule 8D is most appropriate method. Since assessing officer worked out interest disallowance on the same basis, the interest disallowance is confirmed. This leaves both the parties aggrieved and in cross appeals. 4. We have heard both sides and gone through the case file. There is no d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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