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TMI Blog2020 (10) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in upholding the addition of Rs. 63,21,654/- ( as reduced by Assessing Officer from Rs. 1,42,26,765/- by passing order u/s 154 of the Income Tax Act), being disallowance u/s 14A of the Income Tax Act as per para 6.1 of his order. 2. That the Ld. CIT(A) has failed to appreciate the fact that there were sufficient funds available with the assessee company for the purposes of making the investment and, as such, no disallowance u/s 14-A was liable to be made. 3. That the Ld. CIT(A) has failed to consider the recent judgment of Apex Court in the case of PCIT V/s Sintex Industries [2018] 93 taxmann.com 24 (SC), in which, it has been held that where there are surplus funds, no question of making any disallowance or expenditure u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and Dividend is transferred in the account of the assessee. As far as agricultural income of Rs. 8,20,937/- is concerned, a separate Profit & Loss Account from the farm operations has been enclosed as Note No. 21.1 to Statement of Profit & Loss. You will note that against Farm income of Rs. 12,86,800/- there is an expenditure of Rs. 4,65,864/- and the income claimed to be exempted is only Rs. 8,20,937/-, The cost of the farm land is Rs. 1,47,908/-, which was bought several year back and there cannot be any interest element applicable to that. As per the Punjab & Haryana High Court judgment in the case of CTT v. Hero Cycles Ltd., 2010- (323)-JTR-0518 (see Annexure-II), investment out of tax free income will not attract Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s enclosed as Annexure-III showing issue of shares for consideration other than cash. Transfer Assets to wholly owned subsidiary company are exempt from tax u/s 47 of the Income Tax Act 1961. 2.04 Investment in Isqec Engineering & Projects Limited - Rs. 3,30,00,000/-: The investment of Rs. 5,00,000/- was made in the. year 2007 and investment of Rs. 3,00,00,000/- was made in the year 2012 and balance investment of Rs. 25,00,000/- was made in year ended 31.03.2014. These investment are out of company's own retained earnings and funds. During the year there is no exempt income from this investment. As decided by the Hon'ble Punjab & Haryana High Court in C1T Vs. Lakhani Marketing, if there is not tax free income there will be no disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se investments has already been explained being out of own sources of funds previous assessments. ii) Purpose of investment in subsidiary companies is strategic and not investment and therefore, as decided in case of JM Financial Limited Vs. ACIT no disallowance under section 14A can be made. iii) All these investments have been made either from the tax free dividend earned by the Assessee Company and out of owned funds i.e. net worth generated out of retained earnings i.e. Earnings after tax resulting in increase in net worth and owned funds. A statement o f dividend- income and retained earnings is enclosed as Annexure-VJ. From this statement it is clear that the entire investment made in cash is out of these funds and no borrowed fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed funds and investments made in the past, did not make any disallowance of interest expenditure under Rule 8D(2)(ii) of the Income Tax Rules. However, he held that even in case of old investments, disallowance of expenditure under Rule 8D(2)(iii) read with section 14A was attracted to cover the administrative and other misc. expenses incurred for managing the investments made earlier for earning of tax exempt income. He, accordingly made a disallowance of Rs. 1,42,26,765/- under Rule 8D(2)(iii) read with section 14A of the Act. The said disallowance has been further confirmed by the CIT(A). However, the Assessing Officer, in the meantime, on an rectification application moved by the assessee u/s 154 of the Act on account of calculation m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee has been that the investments made were old investment and that the same were out of the own surplus funds of the assessee. However, it is noted that the lower authorities have not made any disallowance out of the interest expenditure under Rule 8D(2)(ii) of the Income Tax Rules. The disallowance has been made only in respect of the administrative expenses under Rule 8D(2)(iii) incurred in the management of the earlier investments made for earning of tax exempt income. The Assessing Officer in this respect has applied Rule 8D(2)(iii) directly without considering the submissions of the assessee that the assessee has not incurred any expenditure in this respect and that all the investment were strategic investments f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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