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TMI Blog2016 (5) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.11.1006 declaring total income of Rs. 1,10,89,117/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 15.12.2008 wherein the income under normal provisions was determined at Rs. 2,36,60,650/- due to various additions/disallowances and 'Book Profits' under section 155JB of the Act were computed at Rs. 60,14,740/-. On appeal the learned CIT(A) disposed off the assessee's appeal vide the impugned order dated 06.12.2010 allowing the assessee partial relief. 2.2. For A.Y. 2007-08, the assessee filed its return of income on 11.11.2007 declaring total income of Rs. 1,27,50,940/-. The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. The assessment was concluded under section 143(3) of the Act vide order dated 22.06.2009, wherein the assessee's income, under normal provisions, was determined at Rs. 2,28,94,930/- in view of certain additions/disallowances and the 'book profits' under section 115JB of the Act were computed at Rs. 19,55,597/-. On appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be disposed off as below. Assessee's appeal in ITA No. 1880/Mum/2011 - for A.Y. 2006-07 3.1 For A.Y. 2006-07, the assessee has raised the following grounds of appeal: - "1(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of Rs. 65,80,910/- on term loan taken from Canara Bank for investment made in acquiring 100% shares of Amroon Foods Private Limited (Subsidiary Company). (b) The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact properly about the business advantage that was derived by the appellant company from investment made in shares of Amroon Foods Pvt. Ltd. and further erred in considering increase in export turnover of Amroon Foods Pvt. Ltd. in terms of time and not in terms of value. (c) The learned Commissioner of Income Tax (Appeals) erred in not treating the investment made in purchase of 100% shares of Amroon Foods Pvt. Ltd. with regard to commercial expediency. (d) The learned Commissioner of Income Tax (Appeals) erred in not allowing interest paid under section 36(1)(iii) / 37(1) of the Act. (e) Without prejudice to the above, the learned Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income Tax (Appeals) erred in not appreciating that section 14A of the Act is not applicable to the facts of the case. 2(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of Rs. 15,72,987/- out of interest paid as proportionate interest attributable to Capital work in progress and order of the learned Commissioner of Income Tax (Appeals) and learned Deputy Commissioner of Income Tax is based on incorrect findings and facts. (b) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in not deducting interest paid on the term loans taken for investment in shares, other old term loan and term loans taken for purchase of Motor cars while computing the disallowance. (c) The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact of the case that interest free funds utilized for purchase of capital assets. 3 That orders of Learned Commissioner of Income Tax (Appeals) and learned Deputy Commissioner of Income Tax and additions made and confirmed therein are not sustainable on various legal and factual grounds. 4. The appellant craves leave to add, alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s leave to add, alter, modify, amplify, amend and vary the above grounds of appeal." Assessee's appeal in ITA No. 5378/Mum/2012 - for A.Y. 2009-10 3.4 In this appeal for A.Y. 2009-10, the assessee has raised the following grounds: - "1(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of Rs. 30,83,648/- on term loan taken from Canara Bank for investment made in acquiring 100% shares of Amroon Foods Private Limited (Subsidiary Company). (b) The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact properly about the business advantage that was derived by the appellant company from investment made in shares of Amroon Foods Pvt. Ltd. and further erred in considering increase in export turnover of Amroon Foods Pvt. Ltd. in terms of time and not in terms of value. (c) The learned Commissioner of Income Tax (Appeals) erred in not treating the investment made in purchase of 100% shares of Amroon Foods Pvt. Ltd. with regard to commercial expediency. (d) The learned Commissioner of Income Tax (Appeals) erred in not allowing interest paid under section 36(1)(iii) / 37(1) of the Act. (e) Without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating the fact properly about the business advantage that was derived by the appellant company from investment made in shares of Amroon Foods Pvt. Ltd. and further erred in considering increase in export turnover of Amroon Foods Pvt. Ltd. in terms of time and not in terms of value. (c) The learned Commissioner of Income Tax (Appeals) erred in not treating the investment made in purchase of 100% shares of Amroon Foods Pvt. Ltd. with regard to commercial expediency. (d) The learned Commissioner of Income Tax (Appeals) erred in not allowing interest paid under section 36(1)(iii) / 37(1) of the Act. (e) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in not appreciating that section 14A of the Act is not applicable to the facts of the case. 2(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of Rs. 3,24,762/- out of interest paid as proportionate interest attributable to Capital work in progress and order of the learned Commissioner of Income Tax (Appeals) and learned Deputy Commissioner of Income Tax is based on incorrect findings and facts. (b) Without prejudice to the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the matter. We find, on a perusal thereof, that as submitted, the Coordinate Bench in the aforesaid order in the assessee's own case for A.Y. 2005-06 (supra) at paras 12 and 13 thereof have held, against the assessee and in favour of the Revenue, as under: - 12. We have heard the rival submissions, perused the orders of the lower authorities and the materials available on record. The facts are not disputed. The borrowed funds have been utilized for acquiring shares of Amroon Foods Pvt. Ltd. The assessee's claim is that, by acquiring the shares of Amroon Foods Pvt. Ltd. it carried on the business more efficiently and, therefore, the entire acquisition of shares was for the purpose of business and the interest paid on the amount borrowed was wholly and exclusively for the purpose of business. We are unable to accept this contention for the simple reason that when a specific provision has been incorporated under the Act, then, the object of investment in shares cannot override the mandate of that provision. Admittedly, the dividend income was exempt under section 10(33) and, therefore, any interest expenditure incurred in connection with earning of dividend income could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be allowed as deduction under any other provisions of the IT Act. 12. Prior to insertion of ss. 10(33) and 115-O of the Act, any dividend declared, distributed or paid by a company to its shareholder was chargeable to tax under the head "Income from other sources" irrespective of the fact whether shares were held by the assessee as investment or stock- in-trade as provided in s. 56 of the Act. Sec. 57 of the Act provides for certain deductions in computing the income chargeable under the head "Income from other sources". Reading s. 57 and s. 58 of the Act, it is plain that the expenditure, not in the nature of capital expenditure and personal expenses of the assessee, laid out or expended wholly and exclusively for the purpose of making or earning the income during the relevant years are permissible deduction in computing the income chargeable under the head "Income from other sources". 13. Regarding the claim for deduction of interest paid on monies borrowed for purchase of shares held as investment, we may observe that before insertion of ss. 10(33) and 115-O of the Act, the deduction for interest paid on monies borrowed for acquiring the shares held as investments cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;." (iii) CIT vs. L.N. Dalmia (1994) 207 ITR 89 (Cal) "Moreover, it has been submitted on behalf of the assessee that the assessee is entitled to submit before this Court that the said deduction should be allowed under the head "Other sources" though against the decision of the Tribunal that such interest was to be capitalised being part of cost of acquisition of shares has not been appealed against. It is well-settled that an allowance for deduction can be upheld on a ground other than that on which it was allowed by the Tribunal. We, accordingly, hold that the interest in question in the present case cannot be part of the cost of acquisition. It is allowable against the income from the investment in question and it can be considered to be set off against the income from other sources. In the circumstances, this issue is answered saying that the said sum on account of interest is allowable as deduction under the head 'Other sources'." 14. We, Accordingly, confirm the order of the learned CIT(A) on this issue." 4.2.2 Following the aforesaid decision of the Coordinate Bench of this Tribunal in assessee's own case for A.Y. 2005-06 in ITA No. 7285/Mum/2008 dated 25.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e funds were available to the assessee for being utilized in investment in capital work-in-progress and accordingly upheld the disallowances of proportionate interest attributable to capital work-in-progress for assessment years 2006-07 to 2010-11. 5.2.2 Before us also, the learned A.R. for the assessee for the assessee reiterated the submissions put forth before the authorities below and in the grounds of appeal (supra), that for all the assessment years in appeal the assessee had only utilized its own interest free funds for investment in capital work-in-progress and had not diverted the interest bearing funds which were wholly utilized for business purposes. On an appreciation of the records before us, the orders of the authorities below vis-a-vis the averments of the assessee, we find that except for raising the grounds (supra) and reiterating the submissions made before the authorities below, before us, the assessee has failed to controvert the findings of fact rendered by the learned CIT(A) in the impugned orders. We concur with the findings of the learned CIT(A) in the impugned orders that an examination of the financial statements for the year under consideration evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receivable by the assessee during the relevant previous year. This proposition was upheld by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT [(2015) 94 CCH 002] (Del) vide order dated 02.09.2015; wherein at para 23 thereof their Lordships have held as under: - "23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year of the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year." 6.3.2 In the case on hand admittedly, the factual position was that the assessee had not earned or received any exempt income in the previous years relevant to assessment years 2009-10 and 2010-11. In these circumstances, in our considered view, the ratio of the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra) would apply squarely in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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