TMI Blog2017 (12) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... iled against order dated 24/07/14 passed by Ld. CIT (A)-11, New Delhi for assessment year 2011-12 on the following grounds of appeal: ITA No. 5242/del/2014 That the Ld.CIT(A) has erred in deleting disallowance made by AO amounting to ₹ 4,87,35,014/- under Rule 8D(2)(ii) of I.T. Rules read with Section 14A of the I.T. Act, 1961. The appellant craves leave to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal. CO No. 142/del/2015 1. That the CIT(A) erred on facts and in law in confirming disallowance out of administrative expenses amounting to ₹ 61,73,967/- u/s 14A of the Income Tax Act, 1961 (the Act) as computed by applying formulae given in Rule 8D(2)(iii) of the Income tax Rules, 1962 (the Rules). 1.1. That the CIT(A) erred on facts and in law in not restricting the disallowance u/s 14A to the amount of ₹ 55,76,775/-, suo motu disallowed by the appellant in the return of income. 1.2. That the CIT(A) failed to appreciate that in the absence of satisfaction being recorded by the AO u/s 14A(2) of the Act, Rule 8D of the Rules had no application. 1.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxfree dividend income of ₹ 7.92 crores shown by assessee. It has been categorically recorded by Ld. CIT(A) that assessee established the activity of financing from which major portion of income amounting to ₹ 12.05 crores has been earned through differential rate of interest on borrowings. It has been recorded by Ld. CIT(A) that assessee categorically established complete flow of funds from its borrowings at a lower rate of interests and their destination to different corporate entities at a slightly higher rate of interest on the basis of the details furnished, the bank accounts through which these funds have travelled. Ld. CIT (A) was of opinion that assessee had established nexus of interest expenses with its main activity of financing and there was not a single amount of interest bearing borrowings which could be related to the investment which yielded tax free dividend income. 4.1. It has been further observed by Ld. CIT (A) that similar issue had arisen for assessment year 2006-07 when Rule 8D was not in existence but no such attributability of interest expenditure relating to tax-free dividend income was found by an order passed by this Tribunal. Further Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant assessment year. 6.2. Ld. AR submitted that the one-to-one nexus of such additional borrowings with inter corporate loans granted or repaid during the relevant assessment year is demonstrated before the Ld. CIT (A). For the sake of convenience the submissions made by assessee before Ld. CIT (A) at pages 5 and 6 of Ld.CIT(A) s order is reproduced herewith:- Without prejudice, on facts, borrowings made in relevant Assessment Year had no relation with investments yielding exempt income On perusal of balance sheet of the appellant for the relevant Assessment Year, it would be noted that the borrowings increased from ₹ 60.15 crores to ₹ 105.42 crores. The opening amount of borrowings of ₹ 60.15 crores, as established by appellant in appellate proceedings for immediately preceding assessment year, were wholly utilised for granting inter corporate loans or for repayment of existing loans. The additional borrowings of ₹ 45 crores apx. were also, it is respectfully submitted, utilised in the relevant Assessment Year for granting inter corporate loans or for repayment of existing loans only and therefore, the same had no nexus with the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan of ₹ 5.5 crores to Sutlej Textiles Industries Ltd. * Balance 0.5 crores kept in hand for payment of interest etc. Morgan Stanley India Capital Pvt.Ltd. 20 10.25% Utilised for repayment of existing loan and granting of a inter corporate loan as follows. * Repayment of ₹ 15 crores to Aditya Birla Finance Ltd. * Loan of ₹ 5 crores to SCM Investment Trading Co.Ltd. at interest rate of 14% and 13% p.a. Total 105 On careful perusal of the aforesaid facts of the case, it would be appreciated that no part of the borrowings were utilsied for making investment, on the contrary the borrowed funds were utilised for giving interest bearing advances/loans, resulting in taxable income in the hands of the appellant. In view of the aforesaid, as the entire borrowings were directly utilised in undertaking financial activities and no part of the same was uitlised for making investment, as also verified and certified as correct by the tax auditor, disalowance of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at could be found related to the investments which yielded tax free dividend income. This Tribunal in assessee s own case for assessment year 2010-11 has observed as under: 17. The assessing officer has failed to establish any nexes between the interest-bearing bore road funds and the investment in the assets yielding tax free income. 18. In our opinion, the findings of Learned Commissioner of income tax (appeals) on the issue in dispute is well reasoned and no interference is required on our side. Further, assessing officer in the assessment year 2009-10, has also accepted the fact of having no nexus between the borrowed funds and the investment in assets yielding tax free income and accordingly has not made any disallowance under rule 8D (2) (ii) of the act. Thus, the rule of consistency also demand that no disallowance under section rule 8D (2) (ii) of the act can be made in the year under consideration. In view of the above we uphold the findings of Ld. Commissioner of income tax (appeals) on the issue in dispute and the ground of appeal of revenue is dismissed. 7.5. On the basis of the above discussion as well as the decision of this Tribunal in assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned, the same has been earned through differential rate of interest in borrowing on which the interest amounting to ₹ 10.61 crores has been paid and advancing the same at a slightly higher rate of interest to the corporate entities, including its group companies. The appellant has categorically established the complete flow of funds from its borrowings at a lower rate of interest and their destination to different corporate entities at a slightly higher rate of interest. The details have been furnished on the basis of appellant's bank account with the Punjab National Bank through which all these funds have travelled. Therefore, the appellant has clearly established the nexus of interest expenses with its main activity of financing .and there was not a single amount of interest bearing borrowings-which could be related to the investments which yielded tax-free dividend income. On the other hand, the AO has not established any nexus of the interest bearing borrowings and consequent interest expenses with the investments resulting into tax-free dividend income. Similar issue has arisen in the appellant's own case in the AY 2006-07, wherein although Rule 8D was not into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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