TMI Blog2017 (5) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... the investing because it is interest free loan cannot be under the provisions of Section 14A read with Rule 8D. Out of the existing investments, investments in M/s Munjal Kiriu Industries (P) Ltd., M/s Hero Chassis System (P) Ltd. and M/s Hero Global Design Ltd. were made in earlier years when the assessee had transferred its undertakings on slump sale basis., under which equity shares as per the approved scheme of de-merger were allotted to it. The assessee had made investments in equity shares of M/s Satyam Computers Ltd., which have been valued at ₹ 73,26,582, as on 31.03.2010 and also had made investments in Hero MVL Alternate Fuel (P) Ltd., a sister concern in the F.Y.2008-09. These investments held for yielding tax exempt di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment for the purpose of computation of disallowance u/s 14A, by holding that there is no nexus between the interest paid by the appellant and the investments made in these companies. 3. The brief facts are as under:- During the Assessment Year the Assessing Officer observed that the assessee has invested ₹ 88,26,71,955/- in the assets which will result in tax exempt income. The assessee was asked to show cause as to why disallowance u/s 14A should not be made. The assessee submitted the reply. After going through the submissions of the assessee, the AO observed that the assessee never kept the two business activities viz exempt income earning activity and other regular business activity separate nor itself given a working for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of its business. Yet, at the same time, it had given loss advances to the parties mentioned hereinabove. The Assessing Officer rightly observed that there are no business purposes or advantage brought out by the assessee to justify such huge advances without impression being given to related concerns or without any commercial reason particularly without its financial condition was bad. The Assessing Officer also relied on Hon ble Punjab Haryana High Court in case of CIT Vs. Abhishek Industries Ltd. 286 ITR 1 where in it was held that as per the issue of establishment of nexus of funds borrowed vis- -vis funds diverted towards sister concern on interest free basis is concerned. In our view, the stand of the assessee that onus of nexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was erroneous in allowing the this issue by holding that company had not earned any dividend income during the year and no new investments were made during the year. The said investments were existing investments and was made in earlier years with the assessee had transferred its undertakings on a slump sale basis. 5. The Ld. AR relied upon the order of the CIT(A). 6. We have heard both the parties it is pertinent to note that the CIT(A) has observed that the company had not earned any dividend income during the year as well as no new investment was made during the year. The investments which were doubted by the Assessing Officer were made in earlier years when the assessee had transferred its undertakings on slump sale basis under w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack of satisfaction of the AO with the claim of the assessee that no expenses were incurred for earning dividend income from such investments. The AO while disallowing this has not brought on record anything to establish that the assessee had incurred any expenses while earning this exempt income and he has not given any finding in this respect. Therefore, the action of the AO in disallowing the dividend income u/s 14A read with Rule 8D is not just and proper. 7. In case of CIT-II vs. Hero Cycles Ltd. (ITA No. 331/2009 (O M): decided on 04.11.2009) the Punjab and Haryana High Court held that Disallowance under Section 14A requires finding of incurring expenditure where it is found that for earning exempt income no expenditure has been i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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