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TMI Blog2015 (12) TMI 1766X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of trading in insulation material, roofing sheets, water proofing material, acrylic sanitary ware and galvanized sheet. Apart from the above, the assessee company is also dealing in purchase/sale of shares and securities and derived profit on sale of investments. Further, the assessee company received interest income on tax free bonds, income tax refund and fixed deposits. The assessee company also claimed divided income of Rs. 8,40,14,974/- as exempt income. 4. During the course of the assessment proceedings u/s 143(3) of the Income Tax Act,1961 (Hereinafter called "the Act") read with Section 143(2) of the Act, the learned assessing officer (Hereinafter called "the AO") observed that no part of the expenses were considered for earning exempt income and the assessee company was asked to furnish detailed working of disallowance u/s 14A of the Act. The A.O. held that Rule 8-D of the Income Tax Rules, 1962 is applicable from assessment year 2008-09 onwards and hence is applicable for the current year under consideration i.e. assessment year 2009-10 and accordingly assessee company was asked to compute the expenses related to incomes as per Section 14 A of the Act read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that it has not incurred any expenditure to earn dividend income and the dividend declared by the company is generally received once a year and deposited in the bank account of the assessee company. The assessee company submitted that its own surplus funds have been invested in the securities from which the exempt dividend / interest income has been earned and no borrowed funds are utilized for making investments. Thus, in nutshell the assessee company submitted that it has not incurred any expenditure whatsoever for earning the exempt income except the amount voluntarily disallowed by the assessee company and all the expenditure debited to the P&L account of the assessee company has been incurred wholly and exclusively for the purpose of the assessee's company business. The assessee company submitted that out of abundant caution and to buy peace of mind and to avoid litigation , the assessee company has voluntarily offered for disallowance of expenditure of Rs. 14,42,900/- us/ 14A of the Act which includes Rs. 5,13,278/- suo moto disallowed in the return of income filed with the Revenue .The assessee company submitted that AO erred in saying that the assessee company has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee company as per mandate of Section 14A(2) of the Act. The ld. Counsel of the assessee company showed us the expenses of Rs. 1,03,30,994/- as per Schedule 11 which is part of audited accounts of the assessee company for the financial year 2008-09 which is placed at page 27 of assessee's paper book and contended that these are the expenses incurred by the assessee company and most of the expenses are incurred for business purpose of the assessee. On being asked, the ld. Counsel submitted that the sales of goods dealt within by the assessee company effected by the assessee company during the assessment year 2009-10 was Rs. 62,48,788/- while the dividend /interest income received was Rs. 8,62,09,965/-. The ld. Counsel of the assessee company also submitted that no borrowed funds were deployed by the assessee for making these investments and the A.O. has wrongly applied Rule 8D(2)(iii) of Income Tax Rules, 1962 by disallowing the expenses of Rs. 43,48,277/- being 0.5% of the total average investments of Rs. 86,96,55,303/- on which the exempt income is earned. The ld. Counsel for the assessee also submitted that for assessment years 2005-06 & 2006-07, the method of determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in the shares and securities , Rs. 11.10 crores in 'loans and advances' while approx Rs. 99.92 lacs is 'cash and bank balance' and vis-à-vis investment in fixed assets is only Rs. 22.65 lacs and the inventories are merely Rs. 37.05 lacs while sundry debtors are Rs. 3.32 lacs, which again strongly indicates on touchstone of preponderance of probabilities that the substantial activity of the company is making investments and granting loans and advances rather than doing trading of the goods dealt in by the assessee company which in our considered view is that the trading activity undertaken by the assessee company constitutes insignificant area of operations vis-à-vis investment activity of the assessee company. The copies of audited accounts of the assessee company for the financial year 2008-09 are placed at page 16- 34 of paper book filed by the assessee company , from which the above figures are extracted .The authorities below have not accepted the contentions of the assessee company with respect to the claim of the assessee company with respect to the amount of expenditure incurred by the assessee company in relation to the earning of exempt income and thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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