TMI Blog2015 (10) TMI 2423X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Rule. 3. Ld. AR of the assessee submitted written submissions which are reproduced below:- PARASNATH TECHGARMENTS PRIVATE LIMITED ASSESSMENT YEAR 2012-13 Justification of Non Applicability of Section 14A Facts of the Case: 1. The Assesses company has made an investment of ₹ 17000000/- by way of equity shares in Mahavir Spinfab Private Limited in earlier years. No investments has been made by the company during the Financial year 2012- 13 2. The company has made entire investments in Equity shares of the said company out of Internal Accrual of the company and no specific borrowings have been made for the investments by the company. 3. The company is an Export Oriented Unit and is availing working capital limits in form Packing Credit and FOUBP/FOUBNLC limit from Punjab National Bank, Birhana Road, Kanpur. The loan has been granted to the company for specific purpose of manufacturing garments exporting the same to buyers. The bank releases the Packing Credit limit on the basis of Export Orders received by the company for purchase of raw materials for Manufacturing of the goods. When the goods are manufactured and shipped to the foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is looking after the Investment made by the company in MSPL . Out of His Salary , a sum of ₹ 12000/- has already been added back in the computation of Total Income towards expenditure incurred as stipulated u/s 14A of the Act , filed on your record, hence no disallowance should be made under Section 14A. RECENT JUICIAL JUDGEMENTS: 1. It is established Law in the arena of Section 14A read with Rule 8D that if no expenditure has been incurred or if there is not any nexus between the Expenditure and Investment, question of disallowance does not arise. In support of this line of reasoning relevance is placed upon the followings: C.I.T. Vs. Metalman Auto Private Limited 336 ITR 434 C.I.T. Vs. Reliance Industries Limited 339 ITR 632 Godrej Boyce Manufacturing Company Vs. DCIT 328 ITR 81 2. The disallowance deserves to be deleted on the additional ground that Appellant has not earned any exempt income during the year. In support of this line of reasoning, reliance is placed upon:- In the case of M/S. Shivam Motors (P) Ltd. Vs CIT ( Allahabd high Court) May 2014 it was held by the hon'ble High Court that in the absence of any tax free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Techopack Advisors (P) Ltd Vs, ACIT ,2012 , 18 Taxman.com 146 , wherein the case was remanded to Assessing Office for examining the Nexus Between Income expenditure for disallowance u/s 14A (Copy of Case Law is enclosed for kind perusal). Further The Leaned CIT(A)-1 had failed to appreciate that all own surplus Funds of the Assessee, as is evident from fund flow statement, remained parked in Stock , Debtors and Current Assists during the Assessment Years 2007-08 and 2008-09 The Assessee has made investments of ₹ 6500000/- during A.Y. 2007-08 and ₹ 10500000/-during A.Y. 2008-09 out of Own funds, earlier parked in stocks and debtors, by way of Realization of Export Debtors in Pre post Shipment Loan accounts . As per terms of the Sanction of Pre-Shipments Post-shipment Credit facilities all the sale proceeds are required to be credited in Banks Loan Account , accordingly the Assessee realized its own funds in the same Loan Accounts. The Learned CIT(A)-1 has also failed to appreciate that there was no nexus between Interest Paid on Working Capital loan and exempt Income during assessment year 2009-10. In the case of Hero Cycles Limited Vs. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionment of expenditures between taxable and non-taxable has, in principle, been now widened under section 14A. One needs to read the words expenditure incurred in section 14A in the context of the scheme of the act and , if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the total income for the purpose of chargeability to tax/' Godrej Boyce Mfg Co Ltd- Vs. DCIT (Unreported judgment of Hon'ble Bombay High Court in ITA 626 WP 758 of 2010 dated 12th August 2010.) Sub section (2) of Section 14A does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which-does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. In the View of above facts and Judicial Preannouncements of Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually used for earning taxable income only and no part thereof was used for making investment in shares. Release of fund by bank for use in export business is a different thing and actual use of such funds for export business is an altogether different thing and apart from raising this claim that the bank releases the funds for export business, neither any contention is raised nor any evidence has been brought on record that in fact, such loan from bank was actually used only for export business whereas, an uncotroverted finding has been given by CIT (A) in an earlier year that almost entire investment is routed through the bank loan account. Regarding this contention that there was no actual dividend income in the present year and reliance on the judgment of the Hon ble Allahabad High Court rendered in the case of Shivam Motors as per judgment made in 2014, we would like to observe that as per the judgment of the Hon ble Apex Court rendered in the case of Rajendra Prasad Moody reported in 115 ITR 519 (SC), it was held that for allowing deduction u/s 57 (iii) in respect of interest paid on money borrowed for investment in shares, actual receipt of dividend is not necessary. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and therefore, there is no merit in this contention also and these judgments cited in support of this contention are not relevant in the present case. We have already dealt with this contention that if there is no dividend income in the present year, no disallowance can be made u/s 14A and it is held by us that as per the judgment of the Hon ble Apex Court in the case of Rajendra Prasad Moody (Supra), there is no such requirement. Our decision is on this basis that although this judgment of the Hon ble Apex Court is in the context of Section 57 (iii) but the requirements and language of Section 14A and Section 57 (iii) are similar. In Section 57 (iii), the requirement is that if any expenditure is incurred for the purpose of making or earning income from other sources, the same is allowable and in Section 14A, it is prescribed that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Since the language and requirement of both sections are similar, the ratio laid down by the Hon ble Apex Court in the case of Rajendra Prasad Moody (Supra) is applicable in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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