TMI Blog2019 (7) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... in the investment activities. Assessee has raised ground claiming the investment activities as business. We are in agreement with the assessee but can only be treated as income from activities which are exempt from tax. With regard to interest expenditure, it is not an expenditure from the activities which is taxable under Income-tax Act. Assessee has not declared any exempt income but made investment, which can only earn exempt income. In such situation, the expenditure relating to that part of activities cannot be claimed. Section 14A is applicable only when assessee declares exempt income. In the given case, there is a clear distinction in the activities itself. Hence, ground raised by the assessee is dismissed. - 424/Hyd/18, 425/H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44,022/-. It was noticed by the Assessing Officer that as per the Balance Sheet, assessee has received unsecured loans of ₹ 1,15,72,920/- and incurred financial charges for payment of interest to the above creditors. The assessee made the investment in equity shares of Sri Godavari Kraft Papers Limited. When the assessee was asked to explain why the interest expenditure should not be disallowed as the borrowed funds were utilised for investment in non-current investment and there is no nexus to the income declared and payment of interest. In response, assessee filed the following, which is reproduced below: i. The objectives as per Memorandum of Articles include investment in companies. ii. The invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1. According to the assessee, shares were acquired as a part of business activity but the assessee has shown the above investment as non-current as the assessee has to wait till the shares fetch substantial profit. Therefore, the interest is allowable expenditure. The Assessing Officer did not accept the contention of assessee and opined that there is no nexus between the interest payment and the investment made which is non-current investment. Therefore, he disallowed the interest claimed by assessee in the P L A/c by relying on the decision of Kankhal Investments Trading Co. (P) Ltd., Vs. ACIT [116 ITD 492], ACIT Vs. M/s. Goel Investments Ltd., in ITA No. 817/LKW/2014, dt. 12th June, 2015 and the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause of the exemption. Therefore the AO has rightly disallowed the expenditure u/s. 36(1)(iii) and the assessee is not eligible for the claim under any other head. In view of the same the addition is upheld. Hence Ground nos. 3 4 are dismissed. Ground no.5 being consequential in nature needs no specific adjudication. Ground Nos. 1 6 being general in nature, also need no separate adjudication . 5 Aggrieved with the above order, assessee preferred an appeal before us, raising the following Grounds of Appeal: 1. The order of the learned Commissioner of Income-tax (Appeals) is erroneous both on facts and in law. 2. The learned Commissioner of Income-tax (Appeals) erred in confirming th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess activity of the assessee, the same should be allowed u/s 36(1)(iii) of the Act. 8. On the other hand, ld. DR relying on the orders of tax authorities, submitted that assessee is not into the business of buying/selling of shares. It only made investment in long term, on which, the income is exempt and gains are taxable under capital gains. 9. Considered the rival submissions and perused the material on record. We noticed that assessee is established with the object to carry on the business to invest, acquire and hold, sale, buy or otherwise deal in shares. The objects also include similar activities of investment. But, being in the first year of operation, assessee had made huge investments in shares, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term investment, the income can only be exempt under Income-tax Act. The relevant expenditure to that extent is not allowable even though the expenditure can be classified as business expenditure considering the object clause. Therefore, assessee has to carry on the business activities separately for exempt and taxable. We have already explained that the activities carried on by the assessee cannot come under business head, still, assessee can classify the activities carried on by it as investment activities and service activities. Since the interest claimed by the assessee is not relating to service activities, it relates to investment activities. The investment activities have not generated any income and this expenditure relates to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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