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TMI Blog2018 (9) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... why the payment was made to Tusk Investment Fund 1 and Tusk Investment Fund 2 of Rs. 60,46,010 each. Consequently, the order passed the Ld CIT(A) is incorrect and without any basis. 4. The Assessee craves to leave to alter, amend or withdraw any grounds of appeal which is necessary in the interest of justice." 3. From the above grounds, it is gathered that the only grievance of the assessee relates to the sustenance of addition of Rs. 60,46,010/- made by the AO by making the disallowance out of the expenses of Rs. 1,20,92,020/- i.e. Rs. 60,46,010/- each on account of payment made to Tusk Investment Fund 1 and Tusk Investment Fund 2. 4. Facts of the case in brief are that the assessee filed its return of income on 24.09.2012 declaring a loss of Rs. 42,14,949/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had debited expenses of Rs. 1,26,07,718/- against the total revenue of Rs. 68,76,847/- in the profit and loss account and that the revenue consisted of interest income of Rs. 49,48,372/- earned as interest on FD with banks and Rs. 18,48,394/- as dividend income which had been claimed exempted u/s 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act had made additions u/s 14A of Rs. 91,47,051/-. Against the said assessment order the Appellant had filed an appeal with Your Honour's office on 12 December 2014 u/s 246A of the Income-tax Act, 196. The Ld AO had made a single addition for the expenses totaling Rs. 120,92,020 presumably incurred for earning tax free returns under section 14A of the Act. The Appellant had challenged this addition and filed an appeal u/s 246A of the Act. The various grounds of appeal are dealt below: 1. Grounds of Appeal 1 -Addition of Rs. 120,92,020 - 14A 1.1 The Appellant contends that the Ld AO has defaulted in application of section 14A of the Incometax Act, 1961 by disallowing a sum of Rs. 1,20,92,020/-. In the assessment proceedings the Ld AO called for the details of Legal Professional Fees totaling to Rs. 121,8,827 out of which Rs. 120,92,020 was paid to two Mauritian Companies after the deduction of tax. The AO was of view the two Mauritian- Companies i.e. Tusk Investment 1 and Tusk Investment 2 acted as management advisor for the investments made in India by the Appellant, hence any amount paid by the Company for the purpose of investment in India to such management adviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpossible to imagine that an investment of magnitude of Rs. 61 crores would be invested just to earn tax free dividends Rs. 18.50 lakhs i.e. 0.3% less than 1% every year. Even an investment in savings bank would have given an assured return of 4-6% gross. Thus, to conclude that the Appellant had invested 61 crores just to earn tax free returns in form of dividends is an argument devoid of any merits. It is to be noted, earning dividends is not an assured activity, no business man will ever incur a recurring expenditure in anticipation of non assured returns esp dividends. The receipt of dividend is totally a feature which depends on lots of factors and there cannot be guarantee just as in case of interest The Mandate of section 14A requires to disallow such expenses which were incurred for the purpose of earning tax free dividends. The Ld AO has not given any reasons why he considers expenses of Rs. 120,92,020 is for the purpose of earning dividends, In the purpose of the Appellant was not only earn dividends based on past records it could have very well invested Rs. 61 crores only in dividend paying companies such as SBI, ONGC and others. On the contrary, Companies like Amar Chitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid to the Mauritian companies was genuine expenses tax deductible u/s 37 of the IT Act. There can be no question of disallowance if any u/s 14A of the Act, as no tax free returns has been shown by the AO to be received by the Appellant from sale of such of shares. As stated, equity dividend cannot be a yard stick to disallow the total business expenditure. At this juncture it is important to note that what Hon'ble Delhi High Court has held in case of CIT vs Holcim India (P) Ltd., ITA Nos. 486/2014 and 299/2014 (Annexure) - ''Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax". 1.6 Further, In Holcim India's case (supra), Hon'ble Delhi High Court has held that AO was wrong is disallowing the entire expenditure as if there was no expenditure incurred by the respondent assessee for conducting business. The expenditure had to be incurred to protect the investment made. The genuineness of the expenditure for the business activities has not been doubted by the AO and thus in given circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is guilty of disallowing a genuine business expenses of Rs. 120,92,020 payable to investment advisor. Moreover, Hon'ble High Court in Holcim India's case has rebutted the theory of dividends and upheld that taxability of shares to be taken as basis to allow or disallow the expenses u/s 14A of the Act. Moreover, time and again it has been held by various tribunals that strategic investment would fall outside the purview of 14A, Till 31 March 2015, the Appellant has not disposed any holding in investments of Rs. 61 crores. Given the long term holding, it cannot be said that the Appellant was holding the shares to earn the dividends. For the period of 5 years, the investments has fairly shown a high returns, still the Appellant has not sold its stake in such companies. Thus, when stakes are with a view of long term, no disallowance can be made of genuine expenses made u/s 14A. The appellant pleads that the order of the AO may kindly be quashed being void ab initio as it is evident that the disallowance u/s 14A made by the AO is not justifiable and against the tenets of law and hence, should kindly be deleted." 6. The ld. CIT(A) after considering the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the mere fact that the accounts of the assessee contain debit entry and that the debit had been duly authorized on behalf of the assessee will not make the expenses deductible from the taxable profits. He observed that the assessee had not submitted any evidence regarding the rendering of services, experience regarding the investment climate in India and the reasonableness of the payment made to the Tusk Investment Fund 1 & 2, Mauritius which was obligatory on the part of the assessee to prove the reasonableness of the amount. He also observed that the mere fact that the payment had been made under a contract/agreement was not conclusive of the expenditure being laid out wholly and exclusively for the purpose of business. Accordingly, the disallowance made by the AO was sustained. 8. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the investments were made in the earlier years on the advice of Tusk Investment Fund 1 & Tusk Investment Fund 2 and no such disallowance was made in the earlier years. It was further stated that for the year under consideration, the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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