TMI Blog2014 (8) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... lant, machinery other assets working capital for business, purchase of raw material, packing material, stores & spares,etc,that the other interest and finance charges had also been incurred towards business of manufacturing of ready made garments, that the loans were for the specific purpose of the business,that the interest expenditure was directly related towards business income which was taxable.DR could not controvert the finding given by him. Therefore, confirming his order we decide the effective ground of appeal against the AO and hold that interest expenditure incurred by the assessee was not hit by the provisions of rule 8D (2)(ii)of the Rules. - Decided in favour of assessee. - ITA/720/Mum/2012, ITA/255/Mum/2012 - - - Dated:- 27-8-2014 - S/Sh. Rajendra,Accountant Member Dr. S.T.M. Pavalan,Judicial Member Assessee by : Shri Nitesh Joshi Revenue by : Smt. Tripura Sundari Order u/s.254(1)of the Income- tax Act,1961(Act) Per Rajendra, AM Challenging the order 04.11.2011of the CIT(A)-6,Mumbai and Assessee and the Assessing Officer(AO) have filed cross appeals.The assessee has raised following Grounds of Appeal: ITA/255/Mum/2012-AY.2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out prejudice to each other. 8)The appellant craves liberty to add, to alter and/or amend the grounds of appeal as and when given. ITA/720/Mum/2012-AY.2007-08: Grounds of appeals filed by the AO read as under: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relied to the assessee to the extent impugned in the grounds enumerated below: 1.On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting interest component calculated as per Rule 8D(2)(ii) in line with judgment of jurisdictional High Court in the case of M/s Godrej Boyce Mfg. Co. Ltd. for calculation of disallowance u/s 14A. 2.For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored. ITA/720/Mum/2012 2.Assessee-company,engaged in the business of manufacturing and trading of garments and apparels, filed its return of income on 24.09.2008 declaring income of ₹ 18,90, 36, 616/-.The AO completed the assessment u/s 143(3) of the Act on 22.11.2010 determining the income of the assessee at ₹ 21,04,05,620/-.The only issue in both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the order of the AO and the arguments of the assessee,the FAA held that the assessee s explanation that no expenditure was incurred towards earning exempt income was not satisfactory, that financial cost, administrative cost and very importantly salary of directors and top management personnel who took decisions regarding making investments were definitely attributable towards earning of exempt income, that the AO gave opportunity to the assessee, that he was not satisfied with the explanation of the assessee that no amounts was attributable towards earning of exempt income, that the AO had recorded his dissatisfaction by stating that the assessee s submissions were carefully considered,that he had mentioned that the explanation given by the assessee was not acceptable on the facts, that the AO s action to apply Rule 8D was correct.He further held that the AO had made mistake in computation of disallowance as per Rule 8D by considering interest expenditure for the purpose of Rule 8D (2) (ii),that the assessee had demonstrated that it had borrowed loans from various banks for specific purpose like purchase of plant, machinery other assets working capital for business,purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that invest - ment not yielding exempt income should be excluded from the computation of disallowance, that most of the investment were made for business purposes, that remaining investment would be no more than ₹ 4 Lakhs, that the FAA had confirmed disallowance of ₹ 31.74 Lakhs. Cases of Shivam Motors and Corrtech Engergy Pvt.Ltd. of Hon ble High Courts of Allahabad and Gujarat (Income tax appeal no.88of 2014)and(Tax appeal no.239 of 2014) respectively, were also relied upon by the AR.Departmental Representative (DR)stated that as per the Rules no exclusion could be made for strategic investment, that potentiality of investment had to be seen, that when administrative/ managerial and clerical expenses, decision about investment could not be made. 5.We have heard the rival submissions and perused the material before us.We find that the assessee had received dividend of ₹ 4,17 during the year under consideration,that on its own it had calculated the disallowance of ₹ 11,663/- u/s.14A r.w.r.8D of the Rules,that the FAA had deleted the addition of ₹ 181.95 lakhs and had confirmed the balance addition of ₹ 31.74 lacs, that the AO had filed appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the reply filed by the assessee and only then invoked the provisions of the Act for making proportionate disallowance. Therefore, we are of the opinion that the AO had recorded his satisfaction.Using of words I am satisfied is not a must-what is required by the Act is the satisfaction must be there before invoking the provisions of section 14A.In our opinion objection raised by the AR in this regard cannot be accepted. 6.1.Now,we would like to discuss the merits. We find that the FAA has held that investment in CPFL appearing on first and last day of the year had to be considered for disallowance.We find that reason for inclusion of said amount is not given by the FAA. Secondly,in the cases of Garware Wall Ropes and J.M. Financial Ltd.(supra)the Tribunal has laid down certain principles about the investment made for strategic investment by an assessee. It is also a fact that the assessee itself had disallowed ₹ 11,663/- in its working of 14A disallowance that was claimed to rational and scientific.Considering the facts and circumstances of the case under consideration, including the working of disallowance made by the assessee and following the decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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