TMI Blog2017 (3) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of acquisition of stock in trade or for the purpose of acquisition of capital assets. The ratio of the above decision of the Hon’ble Bombay High Court squarely applies in the case of the assessee. Even otherwise as observed above, we have already directed for disallowance under section 14A at the rate of 5% of the dividend income earned. The said disallowance made under section 14A will also take care of the interest expenditure incurred by the assessee on investments relatable to earning of exempt income. Under the circumstances, no further disallowance is attracted in this case. Allowable expenditure u/s 36 - Held that:- The interest expenditure incurred by the assessee for the purpose of strategic investment as the investment being the business of the assessee is an allowable expenditure under section 36(1)(iii) of the Income Tax Act. Computation of disallowance under section 14A - Held that:- Direct the AO to exclude the strategic investments made in group/associate companies for the purpose of computation of disallowance under section 14A read with Rule 8D. - ITA Nos.8461/M/2010 & 5598/M/2011, ITA Nos.948/M/2011, 7215/M/2012 & 6013/M/2011 - - - Dated:- 10-2-2017 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 6. It may be further observed that it is not a case where no exempt income was received by the assessee despite making investments for earning exempt income. It is also not the case of the Revenue that the exempt income earned by the assessee was very less or not in proportion to the investments made by the assessee for this purpose. Under such circumstances the different coordinate benches of this Tribunal have observed that in such cases certain percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09. The Hon'ble Bombay High Court in the case of CIT vs. 'Godrej Agrovet Ltd.' (ITA No.934/2011) decided on 08.01.13 has upheld the order of the Tribunal directing the AO to restrict the disallowance to the extent of 2% of the total exempt income earned by the assessee. 7. At this stage, the Ld. A.R. has br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment company and is also engaged in borrowing and lending business whereby the assessee company borrows funds at lower rate of interest and lends the same at higher rate of interest. The Ld. AR has brought our attention to the decision of the Hon ble Bombay High Court in the case of CIT vs. Srishti Securities (P.) Ltd. (2009) 183 Taxman 159 (Bombay) wherein the Hon ble Bombay High Court, while relying upon various case laws, has held that if the capital has been borrowed for the purpose of business or profession of the assessee company then the interest paid on the borrowed funds is an allowable expenditure. It has been further held that in case of an investment company, the amount borrowed may be utilised for the purpose of acquisition of stock in trade or for the purpose of acquisition of capital assets. The ratio of the above decision of the Hon ble Bombay High Court squarely applies in the case of the assessee. Even otherwise as observed above, we have already directed for disallowance under section 14A at the rate of 5% of the dividend income earned. The said disallowance made under section 14A will also take care of the interest expenditure incurred by the assessee on investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect, has invited our attention to page 6 of the paper book which is an audit report of the chartered accountant regarding the investments made and in para 5 of the said document it has been stated that the aggregate cost of investments made in group/holding/subsidiary companies was not less than 90% of the cost of the total assets of the company at any point of time throughout the relevant accounting period/year. 20. As discussed above in the light of the decision of the Hon ble Bombay High Court CIT vs. Srishti Securities (P.) Ltd. (supra) the Hon ble Bombay High Court has held that if the capital has been borrowed for the purpose of business or profession of the assessee company then the interest paid on the borrowed funds is an allowable expenditure. It has been further held that in case of an investment company the amount borrowed may be utilised for the purpose of acquisition of stock in trade or for the purpose of acquisition of capital assets. The ratio of the above decision of the Hon ble Bombay High Court squarely applies in the case of the assessee. 21. Further, the Ld. Counsel for the assessee has brought our attention to the decision of the Hon ble Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of India Advantage Securities Ltd. (supra) is that any expenditure which is held to be relating to the business activities of the assessee and not for the purpose of earning of exempt income and the exempt dividend income, if any, is incidental to such business activity of the assessee, then no disallowance under section 14A in relation to such investment is attracted. Therefore, in the light of above case laws, in our view, no interest disallowance even under section 14A read with rule 8D2(ii) in relation to the investments made by the assessee being relating to its business activity is attracted. Our above decision is in line with the order of the Co-ordinate Bench of the Tribunal in the case of DCIT vs. M/s. Jayneer Capital Pvt. Ltd. ITA No.7111/M/2014 vide order dated 13.07.2016 wherein the Tribunal has further relied upon the judgment of Hon ble Delhi High Court in the case of Oriental Structural Engineers (P) Ltd., 35 Taxmann.com 201; order of Chennai Bench of Tribunal in the case of EIH Associated Hotels Ltd. (ITA No.1503/Mds/2012 dated 17.7.2013); order of Mumbai Bench of Tribunal in the case of M/s. JM Financial Ltd. (ITA No.4521/Mum/2012 dated 26.3.2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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