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TMI Blog2017 (3) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest (Rs.21,52,504/-) u/s. 14A of I.T. the Act when part of the investment out of borrowed fund had resulted into taxable gain (short term capital gain) & there was no tax exempt income in the form of dividend income or long term gain from the investment so made [Vide Para No. 2.1.24 on Page No. 10 of the order] On facts, in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) erred in confirming the order passed by the Deputy Commissioner of Income tax whereby disallowance u/s. 14A was made of interest on borrowed funds utilized for the purpose of investment in shares in spite of the fact that no tax exempt income either in the form of dividend income or long term capital gain was earned by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such borrowing is not deductible by virtue of provisions of sec. 14A of the Income Tax Act. 3. Section 14A disallowance Restricting disallowance of administrative and common expenses only at 50% by invoking provisions of section 14A was excessive and unreasonable [Vide Para No. 2.1.26 on Page No.11 of the Order] On facts, in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) erred confirming disallowance of common and administrative expenses by invoking provisions of Sec 14A of the Act and restricting disallowance at 50% by presuming and thereby holding that only 50% of the activities of the appellant is for business and that balance 50% of the activities are for investment purpose. 3. The is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 14A of the Act was to be made. The Assessing Officer noted that as against exempt income of Rs. 61,38,811/-, taxable income was Rs. 1,63,498/- i.e. about 2.66%, therefore 2.66% of the total debited expenditure at Rs. 87,747/- was held to be allowable and balance expenditure of Rs. 32,11,013/- was disallowed under section 14A of the Act. 5. Before the CIT(A), the assessee pointed out that certain expenditure should not be considered for disallowance under section 14A of the Act as per para 2.1.7 at pages 4 and 5 of the appellate order. The said expenditure was totaled to Rs. 5,65,734/-. Further, the plea raised by the assessee was that there was no merit in making any disallowance out of balance expenditure of Rs. 27,33,027/-. Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no merit in the plea of assessee that no disallowance is to be made in the hands of assessee, where the tax payer has not earned any exempt income. The CIT(A) in view of the CBDT Circular No.5 of 2014, dated 11.02.2014 held that the interest expenditure of Rs. 21,52,504/- merits to be disallowed under section 14A of the Act. Further disallowance of interest of Rs. 5,80,523/- was also upheld. In respect of balance expenditure of Rs. 5,65,733/-, the CIT(A) vide para 2.1.25 held as under:- "2.1.25 With respect to the balance expenditure of Rs. 5,65,733/- (Rs.32,98,760/- - Rs. 27,33,027/-), the Appellant has stated that depreciation disallowance of Rs. 18,699/-, property taxes of Rs. 58,655/- and STT of Rs. 1,29,146/- should be excluded. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further stated that since no exempt income had been earned by the assessee and since the funds were borrowed for the purpose of investment in RPL shares, then there is no merit in disallowance made of interest expenditure of Rs. 21,52,504/-. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. M/s. Delite Enterprises in Income Tax Appeal No.110 of 2009 , judgment dated 26.02.2009. With regard to disallowance of balance interest expenditure of Rs. 5,80,523/-, the learned Authorized Representative for the assessee pointed out that loans were borrowed for business purposes and in any case, the assessee had about Rs. 51 crores as working capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke up the case of Revenue vis-à-vis interest expenditure incurred by the assessee. The first set of investment made by the assessee was in RPL shares for which, admittedly, it had borrowed the funds on which interest expenditure of Rs. 21,52,504/- had been incurred. The case of the assessee before us is that against the said investment income, no exempt income has been received or declared by the assessee and consequently, no disallowance could be made under section 14A of the Act. The Hon'ble Bombay High Court in CIT Vs. M/s. Delite Enterprises (supra) have held that where there is no income arising to the assessee on its investment, then no disallowance is to be made under section 14A of the Act i.e. interest expenses related to su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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