TMI Blog2016 (10) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... ss activities - Held that:- The complete nexus has been established between the funds borrowed and fund parked in the FDRs to be utilized for business purpose at the time of opportune time. So, in these circumstances, the revenue authority was not justified in disallowing the interest claimed by the assessee both in AY 2008-09 and AY 2009-10. - Decided in favour of assessee - ITA No.993/Mum./2012, ITA No.781/Del./2014 - - - Dated:- 30-8-2016 - SHRI J.S. REDDY, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER For The Assessee : Shri KVSR Krishna, CA For The Revenue : Shri F.R. Meena, Senior DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Since identical question of fact and law have been raised in the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion. 2. The appellant, M/s. Phenil Sugars Pvt. Ltd. (hereinafter referred to as the assessee ), by filing the aforesaid appeals, sought to set aside the impugned order dated 28.11.2011 passed by ld. Commissioner of Income-tax (Appeals)-19, Mumbai and dated 21.11.2013 passed by ld. Commissioner of Income-tax (Appeals)- XVII, New Delhi qua th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue expenses. (C) General: 1) The appellant reserves rights to add alter or delete any portion of' this appeal before its conclusion. 2) This appeal is filed in time and may please be allowed in full. 3) Detailed paper book with written submissions case laws will be presented at the time of hearing. ITA No.781/Del/2014 (AY 2009-10) 1. The Ld. CIT(A) has erred in law and on facts in confirming disallowance of ₹ 47,36,853/- on account of interest alleged as not incurred for business purposes u/s 36(1)(iii). The disallowance made by the AD and upheld by the CIT(A) is wrong and bad in law and deserves to be deleted. 2. The CIT(A) has failed to appreciate that the AD has disallowed some portion of interest which means part of the interest he is considering as for business purposes and partly as for non-business. This is not permissible as there is no provision under sec. 36(1)(iii) for making any proportionate disallowance. Therefore the entire interest expenses, being incurred for business purposes, as claimed should be allowed. 3. The CIT(A) as well as the AD has erred in alleging that the application of loan is towards advancing loans and advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,666/- and profit on sale of mutual fund unit of ₹ 19,151/-. Assessee claimed total expenditure debited to P L account at ₹ 4,76,67,736/- on account of interest paid and share issue expenses of ₹ 5,32,200/-. Assessee has huge investment in the quoted and non-quoted shares of ₹ 26,73,81,446/- in the sister/ associate concerns and it was called upon to explain as to why the provisions of section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 (for short the Rules ) should not be invoked so as to debit proportionate expenses to the P L account towards earning of dividend income. Finding explanation furnished by the assessee not tenable, AO by invoking the provisions u/s 14A read with Rule 8D worked out the total disallowance at ₹ 2,14,34,865/- and made an addition thereof. AO noticed that assessee has received and lent unsecured loan to the tune of ₹ 46,19,15,339/- and ₹ 46,62,12,735/- respectively. Assessee availed the loan of ₹ 1,34,84,19,840/- out of which returned ₹ 1,08,70,12,639/- during the year under assessment leaving outstanding balance of ₹ 46,19,15,359/-. Assessee has paid interest of ₹ 4,69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 47,36,853/-. 5. During the year under assessment, the assessee has made substantial investment amounting to ₹ 26.70 crores on average basis, and has also earned dividend income of ₹ 28,666/-. From the computation of income, it is noticed that the assessee has disallowed only a sum of ₹ 1,235/- being demat charges as expenses pertaining to exempt income. He was called upon to explain as to why Rule 8D be not invoked to calculate the disallowance u/s 14A. Assessee filed a working of expenses attributed to the dividend income amounting to ₹ 20,064/-. Finding explanation furnished by the assessee not tenable, AO disallowed the expenses to the tune of ₹ 28,666/-. 6. Assessee carried the matter before the ld. CIT (A) by challenging assessment orders who have dismissed the appeals vide impugned orders dated 28.11.2011 and 21.11.2013 qua the assessment years 2008-09 and 2009-10 respectively. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeals. 7. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shares to the tune of ₹ 26,73,81,446/- in the sister/associate concerns and is bound to incur some expenditure to earn the said dividend income or to manage huge investment of ₹ 26,73,81,446/- and proceeded to invoke the provisions contained under section 14A read with Rule 8D by making following observations :- (i) 8D(2)(ii): The expenditure by way of interest is ₹ 4,69,81,457/- (A). The average value of investment is ₹ 26,74,31,446/- (B). The average value of the assets comes to ₹ 62,51,61,759/- (C). The disallowance as per clause 8D(2)(ii) comes to ₹ 2,00,97,708/- (A*B/C). (ii) 8D(2)(iii) : The total of the investment at the start and close of the previous year was pegged at ₹ 26,74,81,446/- and ₹ 26,73,81,446/-. The average of it comes to ₹ 26,74,31,446/-. The one half percent of the average investment comes to ₹ 13,37,157/-. Thus, the total disallowance u/s 14A r.w.r. 8D works out to ₹ 2,14,34,865/- and the same is being disallowed. 12. The ratio of the judgment cited as Maxopp Investments Limited (supra) passed by the Hon ble jurisdictional High Court is that under section 14A(2,) it is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting exempt income. I am not in agreement with the view of Ld. A.R. as in second limb of Rule 8 (2) the disallowance of interest is to be computed in accordance with the formula A x B/C where A is amount of expenditure by way of interest other than interest directly relatable to exempt income. There is no mention of net interest in the provision and thus the contention raised is rejected. 4.7 No submissions have been made before me in regard to alternate arguments of the A.O. for part disallowance of interest. It is an admitted fact that the appellant is not in the money lending business and the intended purpose of raising loans was to set up a factory but the project having not materialized the funds were invested in interest earning assets and thus the interest income being not relatable to the business of the appellant, is nothing but income from other sources. The interest paid is thus not allowable U/s.36( 1). The alternate plea of the A.O. that the interest expenditure of ₹ 84,99,516/- is to be disallowed is in order. Ground 1-3 are dismissed. 17. Undisputedly, assessee has received unsecured loan at ₹ 46,19,15,339/- and at the same time granted ₹ 46, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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