TMI Blog2015 (8) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... A) and this issue of revenue is dismissed. - Decided in favour of assessee. Disallowance of expenses qua interest against exempt income by invoking the provision of section 14A - CIT(A) deleted disallowance - Held that:- Now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query Ld. Sr. DR could not controvert that the assessee has made in investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at ₹ 365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT(A) on this common issue. - Decided against revenue. - I.T.A No.1989/Kol/2013 and I.T.A No. 1010/Kol/2013 - - - Dated:- 14-8-2015 - Shri Mahavir Singh and Shri B. P. Jain, JJ. For The Appellant: Smt. Sucheta Chattopadhyay, JCIT For The Respondent: Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is not entitled to claim depreciation on value of assets of ₹ 5,04,92,043/-, being the amount of capital subsidy reimbursed to the assessee. Accordingly, the depreciation on above subsidy capitalized is worked out for disallowance as under: .. .. From the above table, the depreciation relatable to assets covered under capital subsidy comes to ₹ 62,94,085/-. Hence the said amount is hereby disallowed as inadmissible depreciation and the same is added back to the total income of the assessee. 5. During the relevant year, the assessee derived dividend income of ₹ 6,31,807/- which is exempt u/s. 10(34) of the I. T. Act, As per the computation of income sheet, only 1% of said exempt income being ₹ 6,318/- has been t5reated as expense offered for taxation. As the said expense is worked out without any basis, the same is not acceptable. Since such expense is not determinable, I go on to work out the expenses relatable to exempt income by invoking Section 14A of the I. T. Act read with Rule 8D of the I. T. Rules. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by observing in para 4.3 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in last year, such partial disallowance of depreciation was deleted by my predecessor in office and also considering the judgments cited by the appellant, the action of the AO in reducing the subsidy from the cost/w.d.v of assets for allowing depreciation u/s. 32 is held to be not tenable and addition made on this account is deleted. Accordingly, this ground of appeal is allowed. As the main ground of appeal has been allowed, there is no need to adjudicate about alternative grounds to ground no.1. Aggrieved, now revenue is in appeal before us. 4. At the outset, ld. Counsel for the assessee stated that in assessee s own case in identical scheme of subsidy the Tribunal has already allowed in AY 2007-08 in ITA No. 1398/Kol/2011 dated 02.04.2014, which is confirmed by Hon ble Calcutta High Court in GA No.2684 of 2014, ITAT No. 138 of 2014 dated 05.09.2014, whereby only question admitted was regarding computation of disallowance of expenses qua exempt income by invoking the provision of section 14A of the Act read with Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the Rules ). Ld. Counsel for the assessee drew our attention to the Memo of Appeal u/s. 260A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income by invoking the provision of section 14A of the Act read with Rule 8D of the Rules. For this, revenue has raised identically worded ground in both the years and the ground as raised in AY 2008-09 reads as under: 2. That the Ld. CIT(A) erred in law in restricting the disallowance u/s. 14A at 0.5% of the exempted income since the decisions of the Ld. CIT(A) is without any basis and in contravention to the judgment of Godrej Boyce Mfg. Co. Lltd. Vs. DCIT (2010) 328 ITR 81 (Bom) which Ld. CIT(A) highlighted in his order. 8. Briefly stated facts are that the AO disallowed interest paid by assessee on loans invested in the assets earning exempt income at ₹ 5,85,519/-. The AO disallowed by invoking Rule 8D(2)(ii) of the Rules by observing as under: 5) During the relevant year, the assessee derived dividend income of ₹ 6,31,807/- which is exempt u/s. 10(34) of the I.T. Act. As per the computation of income sheet, only 1% of said exempt income being ₹ 6,3118/- has been treated as expense offered for taxation. As the said expense is worked out without any basis, the same is not acceptable. Since such expense is not determinable. I go on to work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn funds are sufficient to meet the cost of whole investments, there cannot be any presumption of utilization of borrowed funds for the purposes of investment as was held in Bunge Agribusiness (India) P. Ltd. vs. DCIT (2011) 64 DTR (Mumbai) (Trib.) 01. Apart from that, most of borrowings of the appellant company are mainly secured loans from Banks, etc. granted for use in operational activities and those leans are not allowed to be used for investment in shares/units etc. In view of the above, disallowance u/s/ 14A read with Rule 8D(2)(ii) amounting to ₹ 5,85,519/- is deleted. 9. In respect to AY 2009-10 in ITA No. 1010/K/2013, the AO disallowed and CIT(A) deleted the disallowance by observing that no new investment have been made in shares giving exempt income and he also disallowed the disallowance of interest. Aggrieved, revenue is now in appeal before us. 10. We have heard rival submissions and gone through facts and circumstances of the case. We find that now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query ..... X X X X Extracts X X X X X X X X Extracts X X X X
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