TMI Blog2018 (10) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Appellate Tribunal dated 06.04.2018 raising following questions for our consideration: [ A] Whether the Appellate Tribunal had erred in law and on facts restricting the disallowance to ₹ 15,44,972/instead of ₹ 5,78,22,678/u/ s.14A r.w.r 8D of the Act? [ B] Whether the Appellate Tribunal had erred in law and on facts by not appreciating the ratio decided in Maxopp Investment Ltd. vs. CIT? 2. In relation to the respondentassessee, for the assessment year 2008-09, the question of disallowance of expenditure in terms of section 14A of the Income Tax Act, 1961 ('the Act' for short) and rule 8D of the Rules came up for consideration before the Assessing Officer. The Assessing Officer noted that the assessee had invested its funds in investments earning tax free income. He therefore disallowed interest expenditure of ₹ 5,78,22,678/in terms of section 14A read with rule 8D of the Rules. The issue ultimately reached the Tribunal. The Tribunal restricted the disallowance to ₹ 15,44,972/which could be attributed to such activity. It is this judgment of the Tribunal, the Revenue opposed in this appeal. The main contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le (2) where having regard to the accounts of the assessee of the previous year he is not satisfied with the correctness of the claim of expenditure made by the assessee or the claim made by the assessee is that no expenditure has been incurred in relation to income which does not form part of total income. 11. In case of S. A. Builders Ltd., vs. Commissioner of IncomeTax (Appeals), reported in (2007) 288 ITR page 1 (SC) the Supreme Court considered an issue where the Revenue desired to disallow an assessee s claim of expenditure of interest on borrowed capital which was lent to its sister concern without charging interest. The Supreme Court interpreted the term for the purpose of the business used in Section 36(1)(iii) of the Act in such context. The Supreme Court approved the decision of the Delhi High Court in case of CIT vs. Dalmia Cement (B) Ltd., reported in (2002) 254 ITR 377 and observed that once it is established that there was nexus between the expenditure and the purpose of business which need not necessarily be the business of the assessee itself, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax, Jalandhar I, Jalandhar vs. M/s Max India Limited, ITA No.186 of 2013, decided on 6.9.2016, wherein after considering the relevant case law on the point, the issue was decided in favour of the assessee and it was recorded thus: 9. This presumption is unfounded. Merely because the interest free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease the assessee has interest free funds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilized for the said investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by investing interest free funds towards other assets merely on account of the interest free funds having decreased. In that event so long as even after the decrease thereof there are sufficient interest free funds the presumption that they would be first used to invest in assets yielding exempt income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 14A of the Act would be applicable in a case where shares or stocks of a company were purchased for the purpose of gaining control over the said company and incidentally tax free dividend income was generated. The assessee had contended that the dominant intention for purchasing the shares was not for earning the dividend but to gain control over the business in the company in which the shares were purchased. The Supreme Court held that the purpose for which the shares were purchased was inconsequential. As long as such investment generated tax free income, disallowance of expenditure for making such investment would be justified. This issue does not arise in the present case. However, it is true that while disposing of bunch of appeals by the said judgment the Supreme Court also considered the correctness of the view of the Punjab Haryana High Court in case of Avon Cycles Ltd. It was the case in which the Assessing Officer had invoked Section 14A read with Rule 8D and apportion the expenditure between investments made for earning tax free income and the rest. The CIT (Appeals) had deleted the entire disallowance upon which in the appeal filed by the Revenue the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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