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TMI Blog2021 (12) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... . Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. 4. Briefly stated, the facts of the case are that the assessee company is engaged in the business of Ownership of FMCG product brands activities for development of brands and inter-corporate deposits. Return of income for the year under consideration was filed on 29.09.2014 admitting a total income of Rs. 5,34,90,940/- under normal provisions and Rs. 2,97,66,150/- under the provisions of sec 115JB of the Income-tax Act, 1961 [hereinafter referred to as 'The Act']. The return was selected for scrutiny assessment and accordingly, notices were issued and duly served on the assessee. 5. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed exemption in respect of dividend income of Rs. 62,07,50,000/- and profit in LLP of Rs. 198 crores. The Assessing Officer found that no expenditure in relation to exempt income was disallowed by the assessee u/s 14A of the Act. 6. On perusal of the financial statements of the assessee, the Assessing Officer noticed that total non-current investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan amount was transferred from PNB loan account on 13-01-2010. Similarly, during the F.Y.2012-13, the assessee has made sizeable investments and also borrowed funds in that year. The claim of the assessee in this year is also that the borrowed funds were utilized for making advances to the associate concern for which interest income has been earned. In this year also, the investments advances were made out of common pool of funds and therefore, it is not correct to say investments yielding exempt income were made only out of interest free funds." 10. After referring to some judicial decisions, the Assessing Officer concluded as under: "In view of the above, various contentions raised by the assessee are not legally ten..' and proportionate interest expenditure in relation to exempt income is worked out as per the formula provided in clause (ii) of rule 8D as under: a) The expenditure in relation to income which does not form part of the total income as per Rule 8D(2)(ii) shall be the aggregate of following amounts, namely- A*B/C where; (i) 'A' amount of expenditure by way of interest: Rs. 7,97,31.000 (ii) 'B' the average value of investment (excluding investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is for business expansion. There has not been any direct linkages between the loan taken and investments, exception in case of M/s. Golden Shore Investing Limited. Since this income from M/s. Golden Shore Investing Limited is taxable, hence loan taken for investment in the referred company cannot be generalised as 'Expenditure' for calculation of Section 14A. The submissions of the appellant is comprehensive regarding why Section 14A should not be applicable. There is no doubt that investment has been made to enhance the business of the group company and lesser intention of getting interest free income. The Hon'ble High Court of Delhi in the case of Pr.CIT Vs. IL & FS Energy Development company Ltd., 250 Taxmann 174, held that no disallowance U/S.14A to be made in the AY under question, because no exempt income is earned. In view of this, the submissions of the appellant is accepted and the addition made by the Assessing Officer is deleted." 15. We have given thoughtful consideration to the orders of the authorities below. The contention of the assessee that the investments have been made out of own interest free funds can be understood from the following charts: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59 16,667.41 25,135.94 42,445.28 Industrial Subsidy 20.00 20.00 - - Total(i ) 11,126.98 11,347.59 19,455.41 27,923.94 47,846.23 Other non interest bearing funds Zero percent optionally convertible Debentures (Directly invested into equity shares of Baiai Hindustan 29,500 29,500 Total (ii) - - 29,500 29,500 - Total (i + ii) 11,226.31 11,446.92 49,054.74 57,523.27 47,945.56 16. A perusal of the aforementioned charts would show that as on 31.03.2014, the total investments which earned exempt dividend income was Rs. 36,149.67 lakhs and total investment in foreign subsidiaries as on 31.03.2014 was Rs. 3,246.58 lakhs. There is no dispute in so far as dividend earned from foreign subsidiaries is concerned. Such dividend income is taxable, therefore provisions of section 14A do not apply on such dividend income. A perusal of the details of non-interest bearing funds exhibited hereinabove would show that the assessee had total non-interest-bearing funds of Rs. 47,945.56 lakhs which is much higher than the total investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Sheet as on 31.03.2011 and the amount of Rs. 24.34 lacs in unsecured loans represent sales tax deferment. This cannot be considered to have been investment in the equities of sister concerns. Thus, investments of Rs. 500 lacs were made out of capital & internal accruals. M/s. Bajaj Capital Ventures Pvt. Ltd 2011-12 Balance Sheet as on 31.03.2012 shows: M/s. Bajaj International Realty Pvt.Ltd 2011-12 1. Investment of Rs. 29500 lacs in Bajaj Hindustan Ltd. was made out of the issue of zero % optionally convertible debentures issued for the said purpose. This does not bear any interest cost. A chart, Ledger Account & Bank statement are also attached to show one to one nexus in this regard. M/s. Bajaj Power Ventures Pvt.Ltd 2011-12 2. For making other investments of Rs. 0.01 lacs. Rs. 5012.50 lacs, Rs. 499.88 lacs & Rs. 5.5.34 lacs respectively in the other companies, the assessee had sufficient Opening & Closing Capital and Reserves/ Surpluses of Rs. 11446.92 lacs & Rs. 19455.41 lacs respectively. M/s. Global Power Projects Singapore Pvt. Ltd 2011-12 3. At the other end, no borrowing are there in the Balance Sheet. The amount of Rs. 24.34 lacs in u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.25 lacs respectively. 2. ,4s stated above, all the interest bearing funds were borrowed for the purpose of advancing to sister concerns from which the assessee has earned interest income as detailed in the statement enclosed. Further, the company has also earned other taxable income by temporarily investing out of such borrowed funds. The assessee has repaid all interest bearing funds during the year under consideration but this investment was made during the year and is persisting as on 31.03.2014 clearly showing that it was made out of on interest bearing funds of the assessee. 3. It is also worth pointing out here that investment in Golden Shore Ltd is a foreign investment and since the income therefrom is taxable, the question of application of provisions of section 14A does not apply. Thus, all these investments were made out of interest free funds of the assessee. 18. The Hon'ble Supreme Court in the case of South Indian Bank Ltd Vs CIT in Civil Appeal No. 9606 of 2011 at Para 15 of its order has observed as under: "15. The appellants argue that the investments made in bonds and shares should be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 29.0 8.2018 in ITA No. 2838/DEL/2018. 24. Considering the facts of the case in totality in light of the financial statements exhibited elsewhere, and in light of the ratio laid down by the Hon'ble Supreme Court in the case of South Indian Bank Ltd [supra], in our considered opinion, there cannot be any disallowance of interest for earning exempt income and there is no reason to interfere with the findings of the ld. CIT(A). 25. In so far as the disallowance on account of administrative expenses is concerned, we find that there is no dispute that all the investments are made in the sister concern in which the assessee has deep business interests and under business expediency, it has invested various amounts in shares of group companies. In our considered opinion, these investments are strategic investments made for furtherance of business of its sister concern. 26. As mentioned elsewhere, apart from the investments in Bajaj Corp Ltd and Bajaj Hindustan, all other investments are unquoted investments and any appreciation in the value of shares at the time of sale would be taxable. 27. We find that the assessee has submitted details of each and every item of expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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