TMI Blog2016 (7) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 22 - SUPREME Court] wherein the Supreme Court held that the expenditure in raising loans or issuing debentures would be revenue in nature, irrespective of whether the borrowing is a long term or short term one. This issue is accordingly decided in favour of the assessee. Disallowance of expenditure in the shape of upfront fees and brokerage etc. paid for issuing the non-convertible debentures - Held that:- This issue is also covered with the decision of the Hon’ble Supreme Court’ in the case of India Cements Ltd. v. CIT [1965 (12) TMI 22 - SUPREME Court] wherein the Supreme Court held that the expenditure in raising loans or issuing debentures would be revenue in nature, irrespective of whether the borrowal is a long term or short term one. It was held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained. This issue is accordingly decided in favour of the assessee. Alowability of deduction under section 10A - Held that:- Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93,030 and only considering the balance establishment expenditure for proportionate disallowance under the provisions of section 14A of the Act as well as for computing the Adjusted Book Profit u/s 115JB of the Act. 4. The CIT (A) erred in confirming the disallowance of the alternate claim of the Appellant that should any part of the expenses of the Appellant, including interest, be disallowed, the Appellant should be permitted to capitalize such expenses and enhance the cost of acquisition of the shares to which the said expenses relate. 5. The CIT (A) erred in confirming the disallowance of professional fees of ₹ 19,44,000/- paid for obtaining valuation reports of certain investments held by the Appellant, for the purpose of computing Income from Business or Profession. 6. The CIT (A) erred in confirming the disallowance of Processing fees of ₹ 27,50,000/- paid to the Banks for various Term Loans acquired by the Appellant, for the purpose of computing Income from Business or Profession. 7. The CIT (A) erred in confirming the disallowance of expenditure of ₹ 22,14,030/- incurred as Debenture Issue expenses for the purpose of computing Income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1062.8 crore, while the investment made in various shares was at ₹ 1727.83 crores. The profit and loss a/c. for F.Y 2003-04 reflect that assessee paid/claimed gross interest of about ₹ 75.21 crores, while it had received dividend of ₹ 6.16 crores which was claimed as exempt. The assessee also reflected receipt of interest of ₹ 7.28 crores. The assessee in computation of total income had suo moto disallowed ₹ 39 crores u/s. 14A of the Act. On enquiry from AO for the method and calculation of such amount, the assessee submitted that the working was based on proportionate disallowances of net interest of ₹ 67.9 crores (75.21 -7.28) as proportion of loan fund to total fund. 5. The AO, however, noted that assessee had three departments with respective function i. e. head office (HO) for investment and promoting new companies, Tata Strategic Manufacturing Group (TSMG) for consultancy services and Tata Interactive Services (TIS) for E-learning of computer software. The AO therefore observed that the entire dividend income was by the activity of head office (HO). The assessee explained that it held shares in the companies promoted by it. That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proposition that purchasing of shares for controlling interest cannot be treated as business activities. In respect of contention of the assessee that the dividend income was incidental to the business activity of the assessee, the AO rejected it by relying on the decision of the Hon ble Bombay High Court judgment in the case of Amritaben R. Shah 238 ITR 777 and M/s. Macintosh Finance Pvt. Ltd. of Hon ble ITAT, Mumbai F Bench. The AO also rejected the alternative contention of assessee that dividend was received on the total value of investment of ₹ 93.73 crores, while there was no dividend received on investment of ₹ 1689 crores and therefore, interest disallowances should be restricted for the borrowed fund utilized for investment of ₹ 93.73 crores. The AO thereafter held that the interest expenses were not allowable as per the provisions of sec.14A which states that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income. The AO considered the provisions of sec.10(34) and sec.115-O of the Act and disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Joint Investment Private Limited vs.CIT reported in 372 ITR 694 and of the Hon ble Punjab Haryana High Court in the case of PCIT vs. Empire Package Pvt. Ltd. [ITA No. 415 of 2015 date of decision 12.01.2016] has contended that disallowance u/s 14 A cannot exceed the exempt income earned during the year. He has further submitted that the law declared by the High Court of the other State, in the absence of any contrary decision of the Jurisdictional High Court is binding on the Tribunal. He has further relied upon various case laws to stress the point that even if the assessee under a mistake or misconception has over assessed itself in the return of income, the Tribunal can give relief to the assessee to the extent the assessee is over assessed and direct the lower authorities to tax the assessee as per the provisions of law. The ld. AR has also filed written submissions dated 21.6.2016 in support of the above contentions raised which for the sake of convenience are reproduced as under:- DISALLOWANCE IS ONLY UNDER SECTION 14A 1. (i) The entire interest expenditure is disallowed by the Assessing Officer only under Section 14A. This is clearly estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (per para 3) 75,20,81,011 ii. Other expenses u/s 14A (para 4) 1,31,97,494 GROUND BEFORE CIT(A) AND HIS ORDER ARE ONLY ON SECTION 14A 2 (i) In view of the fact that the disallowance was made only under Section 14A, the Ground of Appeal preferred by the Appellant to the CIT (A) was also confined to Section 14A. This is clear from Ground 2 in the aforesaid Appeal which reads as under: 2.(a) The ITO erred in disallowing the entire interest expenditure of ₹ 75,20,81,011/- under the provisions of Section 14A, for the purpose of computing income from Business or Profession and also in the computation of taxable income u/s. 115JB. 2. (b) The ITO erred in disallowing establishment expenditure amounting to ₹ 1,31,97,494/- in the same proportion as the Dividend Income bears to be the total receipts, for the purposes of computing income from Business or Profession and also in the computation of taxable income u/s 115JB. (ii) The CIT (A) in his order dated 06/05/2008 considered the above specific Ground 2(a) regarding Section 14A and gave his final adjudication in Para 8.1 at the end of page 12 in the following words Under these facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 14A read with Rule 8 D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule? (ii) Mumbai Benches of the Hon ble Tribunal as also others have taken the above view. Some of such Hon ble Tribunal Orders are as follows: a) Syntel Ltd. vs. JCIT (OSD) ITA No.3413/N/2007 (ITAT Mumbai) b) Daga Global vs. ACIT ITA No.5592/M/2012(ITAT Mumbai) c) Sahara India Ltd. vs. DCIT (2014) 148 ITD 336 (ITAT Delhi) LAW DECLARED BY HIGH COURT IS BINDING ON TRIBUNAL IN ANOTHER STATE 5. The Appellate Tribunal is obliged to respect the law laid down by the High Court though of a different state, so long as there is no contrary decision of any other High Court on that question. In the absence of contrary High Court judgments, the above decisions of Delhi High Court (Joint Investments) and Punjab Haryana High Court (Empire Package) should be followed. 1. Smt. Nirmalabai K 186 ITR 242 (Bom) 2. Smt. Godavaridevi Saraf 113 ITR 589 ()Bom) 3. Highway Construction 217 ITR 234 (Gauhati) 4. Maganlal Mohanlal 210 ITR 580 (Gujarat) NO TAX WITHOUT AUTHORITY OF LAW TRIBUNAL CAN GIVE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority of law. (iv) Balmukund Acharya 310 ITR 310 (Bombay High Court) In this case, the Bombay High Court applied the above decision of Nirmala L. Mehta and at page 318 in paragraph 32 observed as follows: Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. (v) CIT vs. CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom.) Brokers 349 ITR 336 (Bombay High Court) The Bombay High Court in this case held that the Appellate authorities have jurisdiction to deal with grounds which become available on account of change of circumstances or law and thus, entertain a deduction which was not claimed in the return of income. (vi) Guharat Gas vs. JCIT 245 ITR 84 (Gujarat High Court) In this case, the Gujarat High Court held that an assessed income can be less than the returned income under the provisions of the Income-tax Act and therefore a contrary CBDT Circular was not in accordance with law. (vii) Chandrashekh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference between the Receipt and Income . He has further contended that this concept has to be understood and applied in reference to Dividend and Income by way of dividend . That income by way of dividend which can be claimed as exempt u/s 10 (34) of the Act refers to the total dividends received minus the expenditure incurred in relation to the earning of such dividends. That the concept of income includes a loss i. e. negative income or zero i. e. nil income. That the expenditure incurred in relation to earning of exempt income whether such activity yields positive income, nil or negative income (loss) is to be disallowed u/s 14A of the Act. He has further relied upon the provisions of section 115-O (5) of the Act wherein it has been provided, no deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub- section (1) or the tax thereon . He, therefore, has contended that any expenditure relatable to dividend receipt is not allowable under any provision of the Act. He has further relied upon various case laws in support of his contentions. He has also filed written su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the history of introduction of such provisions related to dividend in this landmark judgement. (c) The Hon ble Constitutional bench of Supreme Court while dealing with the construction of sec. 80M of the Act, overturned, its earlier decision of 3 Member Bench in the case of Cloth Traders ( P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 and observed that To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. A.M.Y. Delameterat page 18: a Judge ought to be wise enough to know-that he is fallible and therefore ever ready to learn : great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead : and courageous enough to acknowledge his errors. Hon ble Apex Court at para 14 to 17 interpreted the sec.80M as follow: We may, therefore, first examine the language of section 80M for arriving at its true interpretation. But before we do so, let us consider what is the object behind grant of relief under section 80M. It was common ground between the parties that the main object of the relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depending on the nature of the domestic company from which the income by way of dividends is received. The opening words describe the condition which must be fulfilled in order to attract the applicability of the provision contained in sub-section (1) of section 80M. The condition is that the gross total income of the assessee must include income by way of dividends from a domestic company. 'Gross total income' is defined in section 80B(5) to mean 'total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A or under section 80-O.' Income by way of dividends from a domestic company included in the gross total income would, therefore, obviously be income computed in accordance with the provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or in other words, forms part of the gross total income, the condition specified in the opening part of sub-section (1) of section 80M would be fulfilled and the provision enacted in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It is difficult to appreciate how, when we are interpreting the words 'such income by way of dividends', we can make a dichotomy between the category of income by way of dividends included in the gross total income and the quantum of the income by way of dividends so included. This Court observed in Cloth Traders ( P.) Ltd.'s case (supra) that the words 'such income by way of dividends' as a matter of plain grammar must be substituted by the words 'income by way of dividends from a domestic company' in order to arrive at a proper construction of the section, but there is a clear fallacy in this observation, because in making the substitution it stops short of the words 'income by way of dividends from a domestic company' and does not go to the full length to which plain grammar must dictate us to go, namely 'income by way of dividends from a domestic Company included in the gross total income', [emphasis supplied] otherwise, we would not be giving to the word 'such its full meaning and effect. The word 'such' in the context in which it occurs can only mean that income by way of dividends from a domestic company which is inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gross total income any deduction should be required to be made from the full amount of the dividend. The deduction required to be made for computing the total income from the gross total income can only be from the amount of dividend computed in accordance with the provisions of the Act which would be forming part of the gross total income. It is, therefore, clear that whatever might have been the interpretation placed on clause (iv) of sub-section (1) of section 99 and section 85A, the correctness of which is not in issue before us, so far as sub-section (1) of section 80M is concerned, the deduction required to be allowed under that provision is liable to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee. d) Hon ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. [(2012) 343 ITR 89] followed the ratio of Hon ble constitution Bench of Supreme Court in the case of Distributors (Baroda)(P) Ltd [(1985) 155 ITR 120] while adjudicating the issue of netting of interest for consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of Total income . (v) Sec.8 of the Act though has heading as dividend income but the same is to categorize the time when such dividend (both final or interim) is to be included in total income. (vi) Sec.10 (34) is the section for consideration which can be broken as follows for understanding. Any income By way of dividend Referred to in sec.115-O (vii) Sec.10(34A), 10(35), 10(35A), 10(36), 10(37) and 10(38) of the Act are similarly worded with phrase any income by way of . This is because Chapter III of the Act has the heading Income which do not form part of total income . It is therefore, first we have to compute the income following the matching principle which says receipt minus expenditure/outgoing before taking a decision whether such income is excludable or not forming part of Total income (viii) Section 14 of the Act under Chapter IV with the title Computation of total income provides various heads of income. The section can be understood by breaking it as follows Save as otherwise provided by the Act. All income Shall For the purpose of Charge of Income Tax and computation of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y result into loss i. e. negative income or nil income. There can be a receipt (sec.66 r. w. Chapter VII) the income resulting there from though includable but no income tax is charged resulting into non application of sec.14A of the Act. There can be dividend which is not referable u/s. 115-O of the Act i.e on which no dividend distribution tax (DDT) is paid and therefore, for receipt of such dividend, income under the head income from other source is required to be computed where expenditure related to such dividend are admissible if eligible u/s. 57 (iii) of the I.T. Act. The basic intention and purpose of introducing sec.14A of the Act was to enlarge the scope of the apportionment of various expenditure irrespective of the fact whether the business or activities of an assessee is divisible or indivisible. Such intention and object of Hon ble Legislature cannot be disregarded delving into consideration of receipt of dividend rather than considering income from dividend. The scope for prohibiting the dual benefit which were permissible prior to insertion of 14A of the Act by not only claiming exempt income on one hand and by reducing taxable income with the claim of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticularly in respect of clause 5 of sec.115-O (para 5.15 of the Hon ble ITAT order), the Hon ble ITAT considered Hon ble ITAT Kolkata Bench order in the case of S.G.InvestmentInds. Ltd. Hon ble ITAT Kolkatta observed following important observations in respect of section 10(33) (as now 10(34)) and sec.115-O of the Act. (i) The section 115-O(1) beginning with the expression notwithstanding anything contained in any other provisions of this Act is to give the provisions of section 115-O(1) in case of conflict, an overriding effect over any other provisions of the IT Act, 1961. It is thus clear that section 115-O(1) is a specific provision overriding in case of conflict, the general provisions. The sub-section (5) of section 115-O has made it clear that no deduction under any other provisions of Income-tax Act shall be allowed to the company or a shareholder in respect of dividend income which has been charged to tax under section 115-O(1) or the tax thereon. Thus, this sub- section has restricted the allowability of all deductions, which may otherwise be allowable under any other provisions of the Act, against dividend income. It means that the interest paid for borrowings use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts. (i) Hon ble ITAT in this order at para 8 9 considered following facts; 8. In the course of hearing, a query was raised from the Bench as to how the deduction could be allowed under the head Profits Gains from Business/Profession particularly when neither of the receipts from such business was assessable under such head. It was clarified to him that in the business of holding of investments in shares, the receipts were either by way of dividends or sale proceeds of shares. Both the receipts were not assessable under the head Profits Gains from Business/Profession but were assessable either under the head Income from other sources or under the head Capital Gains . Thus, computation of income under the head Profits gains of business or profession did not arise. 9. Faced with such query, it was submitted that the assessee cannot lose the statutory deduction which is otherwise allowable under section 36(1)(iii) merely because receipts from such business are not assessable under the head Profits Gains from Business/Profession . Reliance was placed on the judgment of Hon ble Supreme Court in the case of CIT v. Rajendra Prasad Moody [1978] 115 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits and gains from business or profession since such receipts falls under the specific heads. Income can be computed only after allowing deductions as provided under the head under which income is to be computed. No other deduction is permissible except provided under that head. The interest paid on the borrowed funds, at the most, could be allowed against the dividend income if investment is made to earn the dividend income. The contention of the assessee is that investment was not made to earn dividend income. Therefore, such deduction could not be allowed even against the dividend income. Even otherwise, such income being exempt the question of deduction against dividend income becomes academic. The interest paid as per the contention of the ld. counsel for the assessee, could relate to the profits arising from sale of investments since the main object was to hold the investments. Since income arising from sale of investment has to be computed under the head Capital Gains , the deduction has to be allowed only in accordance with the provisions specified under the head Capital Gains . The Legislature was aware of the aspect of inflation of price and, therefore, it made prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) Hon ble HIGH COURT OF MYSORE in the case of United Breweries ([1973] 89 ITR 17) held It is well-settled that the mere fact that a man holds all the shares in a company does not make the business carried on by that company his business, nor does it make the company his agents for the carrying on of the business. That proposition is just as true if the shareholder is itself a limited company. It is also well-settled that there may be such an arrangement between the shareholders and a company as will constitute the company the shareholders agent for the purpose of carrying on the business and make the business the business of the shareholders. It is, therefore, a question of fact in each case to be decided whether the subsidiary was carrying on the business as the company s business or as its own. The business of a subsidiary company can be regarded as the business of the parent-company if in addition to the capitalist control; it has functional control over its subsidiary. In the case of appellant, the question of business carried on by the group companies with that of appellant s own business is required to be considered if the claim of interest is to be allowed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of acquiring controlling interest and for the acquisition of other companies for the group. The acquisition of controlling interest in companies was not the business of the assessee as the assessee had not acquired controlling interest in any company with a view to managing the same. The assessee is an investment arm of the Zee group who has the management control over the companies. Advancing money interest free is also not the business of the assessee. Therefore, acquiring shares in the group companies for maintaining the controlling interest does not promote the business of the assessee and is only helpful to the group for having the management control over the companies. The ld. AR has relied on the judgment of the Hon'ble Supreme Court in the case of S.A. Builders (288 ITR 01) to argue that advances had been made on commercial expediency and therefore interest on borrowings should be allowed. It has not been shown to us as to how business of those companies promotes the business interests of the assessee so that interest free advances to them could be justified on commercial expediency. Reliance has also been placed on the judgment of the Hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the total income of a previous year, shall not claim a deduction in respect of the expenditure incurred in relation to earning such income. Section 14A is founded on a valid rationale that the basic principle of taxation is to tax net income, that is to say, gross income minus the expenditure. On that analogy as the Supreme Court observed in Walfort Share Stock Brokers (P.) Ltd. s case (supra), the exemption is also in respect of net income and expenses allowed can only be in relation to the earning of taxable income. Therefore, it cannot be said that an absurdity would result on the application of the literal interpretation of section 14A [Para 45] . i) The CBDT vide circular no.5/2013 dt.11.02.14 through a clarification in respect of disallowance of expenses under Rule 14 A of the Act clarified as follows: SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - CLARIFICATION ON DISALLOWANCE OF EXPENSES UNDER SECTION 14A IN CASES WHERE CORRESPONDING EXEMPT INCOME HAS NOT BEEN EARNED DURING THE FINANCIAL YEAR CIRCULAR NO.5/2014 [F.NO.225/182/2013-IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration. 5. The above position is further substantiated by a language used in Rule 8D(2)(ii) 8D(2)(iii) of I.T. Rules which are extracted below: (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt of amount computed in accordance with the following formula, namely:- A/B/C Where .. B=the average of value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year. (Emphasis added) 6. Thus, in light of above, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court which is not considered by Hon ble High Courts and Tribunals (as relied on by appellant) required to distinguish. The ratio of Jurisdictional High Court in the case of Godrej Boyce Manufacturing Co. is binding. The ratio of various cases relied on by appellant are of other Hon ble Courts and Tribunals but no such ratios are laid down by Hon ble Jurisdictional High Court or Hon ble ITAT, Mumbai. Rather the ratios of Hon ble ITAT are in favour of revenue preposition. (4) The ld. CIT(A) order dt. 02.05.2008 a) At para 8 page 10,Ld.CIT(A) considered following undisputed facts i. total loan fund of ₹ 1062.8 crs. ii. Interest paid on borrowed capital and claimed in P L A/c. is ₹ 75.20 crs. iii. Investment as per the balance sheet as on 31.03.2004 is of ₹ 1727.82 crs. iv Dividend receipt is of ₹ 6.16 crs. v. The assessee in its computation of income (annexure B at Sr.32 of appellant s paper book) suo-moto disallowed expenditure for earning dividends at ₹ 39 crs. vi. The assessee admitted that interest paid on money borrowed for the purchase of share in group concern/companies for the purpose of controlling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 2006 w.e.f 1.4.2007 conferred such disallowances for the first time from 1.4.2007. iv. The ratio of ITAT Cochin in the case of Dhanlaxmi Bank Ltd. V/s. ACIT -12 SOT 625 does not permit such disallowances in the absence of any method which was subsequently provided by sec.40A (2) of the Act. v. The assessee vide its letter dt.18.2.2008 submitted before the LD.CIT(A) about complete detail of head office expenditure of ₹ 93.39 crs. expendituresuo-moto disallowed by the assessee in the return of income by ₹ 5.67 crs. (excluding ₹ 39 crs) and disallowances of expenses made by the AO in the impugned assessment order of ₹ 0.74 crs. (disallowance of balance interest of ₹ 36.21 crs excluded )for the contention disallowance can be considered on an amount of ₹ 10.26 crs. at the rate of 7.57 % i.e disallowance of ₹ 7768850/- instead of ₹ 13197494/. d) The Ld. CIT(A) at para 10 page 15 held that i. The appellant has merely contended that the disallowance purely on conjectures and surmises without establishes any nexus between the expenditure and head office and the tax free income cannot be made and sustained. However, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of these companies. The assessee had made investments only in the wholly owned subsidiaries and in associated companies. That the entire investments were made for business purposes for having control over subsidiary and associated companies the undisputed facts are that the assessee is an investment finance company and a promoter of new companies in hi-tech field. As a business activity, the assessee holds investment in the share capital of the companies promoted by it as controlling interest and therefore, takes active interest in the business of these companies. The entire investments were made for business purposes for having control over subsidiary and associated companies. 12. We find that the above issue is now squarely covered by the decision of the Jurisdictional Hon ble Bombay High Court in the case of CIT, Panaji, Goa vs. Phil Corpn. Ltd. (2011) 202 Taxman 368 wherein it has been held that where the investment in shares of sister/subsidiary company is made to have control over that company and further that such an investment was accordingly part of the business of the assessee, in that event the assessee is entitled to deduction of interest paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as such under Section 36 (1) (iii). At the same time, we are also of the opinion that there has been inadequate consideration and discussion on this aspect before the lower authorities, particularly the AO and the CIT (A). As has been pointed out on behalf of the Revenue, at that stage, the parties were more concerned with whether net or gross expenditure had to be deducted under Section 80M. At the same time, the assessee, we notice did put his contention both to the CIT (A) and ITAT. 10. This Court, therefore, is of the opinion that the law as declared by the Supreme Court in such cases is that if the expenditure is incurred for the purpose of promotion of business- more specifically as in the facts of this case to retain control or as part of a strategic investment of the assessee/company, such expenses - by way of interest outgo would have to be treated under Section 36 (1) (iii) and not under Section 57. The matter is, therefore, remitted to the AO for full appraisal of the fact situation and findings in the light of our conclusions. If, as a result of the AO's determination, it is found that such expenditure is incurred, the net expenditure is obviou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or earning such income . In order that an expenditure may be admissible under Section 57(iii) it is necessary that the primary motive of incurring it is directly to earn income falling under the head Income from other sources . That is not so under Section 37 which allows deduction of expenditure incurred wholly and exclusively for the purposes of the business . Under Section 57(iii), deduction will not be allowed if the expenditure is not incurred for the purpose of earning income falling under the head Income from other sources . 15. The Hon ble High Court has thus made a distinction between the provisions of section 57(iii) and that of section 37 of the Act. The Hon ble High Court has thus observed that under section 57(iii) it is necessary that the primary motive of incurring it is directly to earn income falling under the head Income from other sources . That is not so under Section 37 which allows deduction of expenditure incurred wholly and exclusively for the purposes of the business . In the case of the assessee, admittedly, the strategic investments were made for business purposes. The assessee being an investment finance company and a promoter of new companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. 18. A perusal of the above conclusion reveals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 21. Now, coming to the merit of disallowance made u/s 14A of the Act, there is no dispute has been raised by the assessee in this case as regards to the proposition of law laid down by the Hon ble Supreme Court in the case of Walfort Share Stock Brokers Pvt. Ltd. (Supra) as well as of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. Vs. DCIT (supra) that no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to exempt income. It is an admitted fact that the assessee had earned substantial dividend income during the year out of the investments made. The assessee has not contested the applicability of the provisions of section 14A in relation to the exempt income received. The assessee has chosen not to rebut the contentions of the DR that only the net dividend income can be allowed to be exempted from tax and not the gross dividend receipts. The Ld. AR has also not advanced any arguments regarding the applicability of the provisions of section 115-O of the Act. 22. Since the assessee has not contested the applicability of section 14A of the Act in relation to the exempt dividend income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Godrej Boyce Manufacturing Co. Ltd. (supra) the Hon'ble Bombay High Court has held that Rule 8D r. w. s. 14A(2) is not arbitrary or unreasonable but can be applied only if the assessee's method is not satisfactory. It has been further held that Rule 8D is not retrospective and applies from A.Y. 2008-09. For the years for which Rule 8D is not applicable and in the event of that the AO is not satisfied with the explanation/working given by the assessee, disallowance under section 14A has to be made on a reasonable basis. Almost similar view has been expressed by Hon'ble Delhi High Court in the case of 'Maxopp Investment Ltd. Others' vs. CIT (247 ITR 162). Hence, the rule 8 D of the Income Tax Rules is not applicable for the Assessment year under consideration. Disallowance under section 14 A, thus, can be made on some reasonable basis for the year under consideration and not under rule 8 D as held by the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd . (supra). 26. It may be further observed that this is not a case where no exempt income was received by the assessee despite making investments. The assessee admittedly has ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the relevant previous year and that the expression does not form part of the total income , in section 14A of the Act envisages that there should be an actual receipt of income which is not included in the total income during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. Almost identical issue has been taken by the Hon ble Allahabad High Court in the case of CIT Kanpur vs. M/s. Shivam Motors Pvt. Ltd. in ITA No.88 of 2014 vide order dated 05.05.2014; by the Hon ble Gujarat High Court in the case of CIT vs. Corrtecth Energy Pvt. Ltd. in ITA No.239 of 2014 vide order dated 24.03.2014 and by the Hon ble Bombay High Court in the case of CIT vs. M/s. Delite Enterprises in ITA No.110 of 2009 vide order dated 26.02.09. 28. The ld. DR has not pointed out any contrary decision to the above proposition. 29. In view of the overall facts and circumstances of the case, as discussed above, and in the light of the above decisions of the higher courts, which are otherwise binding on this Tribunal, we are of the view that disallowance u/s 14 A in this case cannot exceed than the tax exempt income earned by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below and having a bearing on the tax liability of the assessee. The full bench of the Hon ble Bombay High Court in the cases of Ahmedabad Electricity Company Ltd. vs. CIT and Godavari Sugar Mills Ltd. vs. CIT by way of a common order dated 30.04.1992 (1993) 199 ITR 351 has observed that the basic purpose of an appeal procedure in an income tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either by the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The Hon ble Bombay High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted v. CIT (2006) 157 Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Even otherwise, the Ld. CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the assessee is not liable to pay Capital Gains Tax, though originally he had subjected himself to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and brokerage etc. paid for issuing the non-convertible debentures. The AO concluded that since the term of the debentures was spread over two years, hence benefit arrived at by the assessee was of enduring nature spread over two years. The AO therefore calculated the expenses pertaining to the year under consideration and disallowed the remaining expenses. 36. We find that this issue is also covered with the decision of the Hon ble Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, wherein the Supreme Court held that the expenditure in raising loans or issuing debentures would be revenue in nature, irrespective of whether the borrowal is a long term or short term one. It was held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained. This issue is accordingly decided in favour of the assessee. 37. Grounds No. 8 has not been pressed by the assessee being taken as alternative ground to ground No. 7. This Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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