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TMI Blog2015 (10) TMI 2041X X X X Extracts X X X X X X X X Extracts X X X X ..... d disallowance of other expenses amounting to Rs. 19,49,464/-. The second grievance relates to the disallowance of interest expenses amounting to Rs. 1,10,83,572/- u/s. 37 of the Act and the last grievance relates to the Non-granting of tax credit for TDS amounting to Rs. 13,30,533/-. 5. The assessee is in the business of trading in pollution control equipments. The return for the year was filed on 30.9.2009 declaring loss of Rs. 60,47,746/-. The return was selected for scrutiny assessment. While scrutinizing the return of income, the Assessing Officer noticed that the assessee has earned dividend amounting to Rs. 1,66,44,074/-. The AO further noticed that the assessee has incurred interest expenses amounting to Rs. 3,58,66,882/- and has also earned interest amounting to Rs. 52,88,665/-.The AO was of the firm belief that disallowance u/s. 14A in respect of the exempt income is required to be made in the instant case. The AO proceeded by computing the disallowance u/s. 14A as prescribed under Rule 8D and computed the disallowance at Rs. 2,14,44,109/- and added to the income declared. The AO further noticed that the assessee has claimed net interest of Rs. 3,05,78,217/- being intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of other expense is concerned, the Ld. Counsel pointed out that in the A.Y. 2007-08, the Tribunal has held that the statutory and administrative expenses incurred during the course of business ought to be allowed while computing profits and gains from business or profession. The Ld. Counsel placed the order of the Tribunal. 9. Per contra, the Ld. Departmental Representative strongly supported the findings of the Revenue authorities. 10. We have given thoughtful consideration to the orders of the authorities below. Undisputedly, the investments made by the assessee are in its subsidiary companies and associated companies which are special purpose vehicle formed to execute specific projects. Undoubtedly, the investments in subsidiary/associate companies are done on account of business expediency in order to carry on the business of the assessee. Accordingly, the investments can be seen in the light of strategic in nature and inextricably linked with the main business operation of the assessee. The Tribunal in the case of J.M. Financial Ltd. (supra) had considered similar facts and finally decided the issue in favour of the assessee and against the Revenue. While decidin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which is taxable. For attracting the provisions of section 14A- "there should be proximate cause for disallowance which has relationship with the tax exempt income as held by the Hon'ble Supreme Court in case of CIT Vs. Walfort Share and Stock Brokers P. Ltd. ( 326 ITR 1). Therefore, there should be a proximate relationship between the expenditure and the income which does not form part of the total income. In the case in hand the assessee has claimed that no expenditure has been incurred for earning the exempt income, therefore, it was incumbent on the AO to find out as to whether the assessee has incurred any expenditure in relation to income which does not form part of the total income and if so to quantify the expenditure of disallowance. The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure M/s JM Financial Limited 10 has been incurred for earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt exhibited at page-33 of the Paper book, we find that the total amount debited is Rs. 87,04,079/- out of which the assessee has suo moto disallowed Rs. 50,85,541/-. We further find that expenditure amounting to Rs. 6,56,117/- are covered by the decision of the Tribunal in assessee's own case for A.Y. 2007-08. Thus, only the expenditure amounting to Rs. 29,62,421/- remain to be considered. 13.1. We find that the assessee has also received income from business auxiliary services amounting to Rs. 1.15 lakhs. In our considered opinion, the balance expenditure of Rs. 29,62,421/- may be considered for earning the income from auxiliary services. However, at the same time we find that some reasonable disallowance ought to be attributed for which 2% of the dividend income should meet the ends of justice. We, accordingly direct the AO to restrict the disallowance to 2% of dividend income. Ground No. 1 with its sub-ground is partly allowed. 14. Ground No. 2 relates to the disallowance in interest expenses amounting to Rs. 1,10,83,572/- u/s. 37 of the Act. 14.1. As mentioned elsewhere, the investments made by the assessee have to be seen in the light of strategic investment inextricably l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en denied only because the same is not reflected in Form No. 26AS. However, in our considered opinion, the Revenue is obliged to grant the assessee the credit for the TDS for which it is able to satisfactorily proves to the AO, the factum of deduction of tax at source and its deposit to the credit of the Central Government. We restore this issue to the file of the AO. The AO is accordingly directed to allow the assessee credit for the TDS after verifying the TDS certificate. Ground No. 3 is allowed for statistical purpose. 17. In the result, the appeal filed by the assessee is partly allowed for statistical purpose. ITA No. 470/M/2014 - A.Y 2010-11 18. The grievance of the assessee relates to the disallowance made u/s. 14A r.w. Rule 8D and disallowance of interest expenditure u/s. 37 of the Act. 19. Both these issues have been discussed by us at length in ITA No. 2173/M/2013. Respectfully following our own decision, the impugned additions are directed to be deleted. 20. In the result, the appeal filed by the assessee in ITA No. 2173/M/13 is partly allowed for statistical purpose and the appeal filed by the assessee in ITA No. 470/M/14 is allowed. Order pronounced in the open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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