TMI Blog2021 (12) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... tem of expenditure and has specifically pointed out that none of the same is incurred for the purpose of earning exempt income. It was brought to the notice of the Assessing Officer that the directors of the company are also employees of the sister concern, who do not draw any remuneration from the company and take care of entire investment work. No error or infirmity has been pointed out by the Assessing Officer who has simply computed the disallowances as per formula given in Rule 8D. In our considered view, such mechanical approach of the Assessing Officer has no legs to stand on. We, therefore, decline to interfere with the findings of the ld. CIT-A. Appeal of revenue dismissed. - ITA No. 4018/DEL/2018 - - - Dated:- 24-9-2021 - Shri N.K. Billaiya, Accountant Member, And Shri Sudhanshu Srivastava, Judicial Member For the Assessee : Shri Sandeep Jhanwar, C.A. For the Revenue : Shri Bhopal Singh, Sr. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, This appeal by the Revenue is preferred against order of the Commissioner of Income Tax [Appeals] 1, Hyderabad dated 18.12.2017 pertaining to Assessment Year 2014-15. 2. The grievances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has incurred no expenditure for earning exempt income claiming that the investments have been made in group companies as strategic investment. 8. It was strongly contended that the assessee has sufficient own interest free funds to make investments and, therefore, there is no question of investment made out of borrowed funds. It was further pointed out that though the assessee has incurred interest cost of ₹ 797.31 lakhs but has also earned interest income of ₹ 589.63 lakhs and further earned income of ₹ 136.09 lakhs as short term capital gain. 9. After considering the detailed submissions made by the assessee and after analysing the financial statements, the Assessing Officer, in his wisdom, observed as under: The main plank of the argument of the assessee in this regard is that none of the investments was made out of interest-bearing borrowed funds but from the capital, reserves/surplus and interest free borrowings and therefore, provisions of Sec.l4A do not apply to the exempt income claimed by the assessee in the return of income. In support of its claim, the assessee has also submitted year-wise investments and the flow of the funds right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the previous year : ₹ 58171.195 lakhs Disallowance u/s 14A r.w.r. 8D (ii) : A*B/C = ₹ 6,06,28.900 11. In addition to the above, the Assessing Officer proceeded to make further addition u/r 8D(iii) of the Rules amounting to ₹ 79.46 lakhs and made total disallowance u/s 14A r.w.r 8D amounting to ₹ 6,85,74,900/-. 12. Assessment was strongly agitated before the ld. CIT(A). The contention made before the Assessing Officer were reiterated 13. The assessee once again explained the financial statements pointing out that the investments have been made out of sufficient own interest free funds and further, the exempt income has been earned only from investments made in Bajaj Hindustan Ltd and Bajaj Corp Ltd. and SKB Roop Commercials LLP and no exempt income has been earned from any other investment. It was brought to the notice of the ld. CIT(A) that all these investments have been made in earlier assessment years and no borrowed funds were utilised for making these investments. 14. After considering the facts and submissions, and after going through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-03-2011 31-03-2012 31-03-2013 31-03-2014 Non. Current Investment Investment in Equity Instruments I ------- Baiai Capital Venture Pvt Ltd - - 0.01 0.01 0.01 Bajaj Corp Ltd 500.00 500.00 500.00 382.00 382.00 Baiai Hindustan Ltd - - 29,500.00 29,500.00 29,500.00 Bajaj International Realty Pvt Ltd 5,012.50 5,012.5 5,012.5 Global World Power Project Pvt Ltd 500.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total (A+B) 2,826.51 8,822.51 38,840,24 55,147.09 39,390.25 DETAILS OF NON INTEREST BEARING FUNDS For the year ended (Rs. in laes) Particulars 31-03-2010 31-03-2011 31-03-2012 31-03-2013 31-03-2014 Net owned funds Equity Share capital 99.31 99.31 99.31 99.31 99.31 Preference Share Capital 0.02 0.02 0.02 0.02 0.02 99.33 99.33 99.33 99.33 99.33 Reserve and surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment of ₹ 36, 149.67 lakhs. 17. Further, investments made in the company generating exempt dividend income can be understood from the following charts: Investee Company F.Y. of Investment Source Remarks (Balance Sheet and relevant schedules are enclosed as Annexure-2 M/s. Bajaj Corp Ltd 2007-08 Balance Sheet as on 31.03.2008 shows: 1. The assessee has Capital Reserves /Surplus of ₹ 7228.85 lacs. 2. No borrowings are there in the Balance Sheet. The amount of ₹ 22.78 lacs in unsecured loans represent sales tax deferment which cannot have any relevance with the investment made. Thus the amount of ₹ 500 lacs was invested out from capital and internal accrual. M/s. Golden Shore Investing Ltd (Foreign Company) 2009-10 Balance Sheet as on 31.03.2010 shows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 Balance Sheet as on 31.03.2012 shows: M/s. Bajaj International Realty Pvt.Ltd 2011-12 1. Investment of ₹ 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 ₹ 0.01 lacs. ₹ 5012.50 lacs, ₹ 499.88 lacs ₹ 5.5.34 lacs respectively in the other companies, the assessee had sufficient Opening Closing Capital and Reserves/ Surpluses of ₹ 11446.92 lacs ₹ 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 ₹ 24.34 lacs in unsecured loans represent sales tax deferment. This cannot be considered to have been invested in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.03.2014 shows: M/s. Golden Shore Investing Ltd. (Foreign Company) 2013-14 1. The company has opening closing capital, reserves ad surplus interest free borrowing of ₹ 57523.47 lacs ₹ 47945.56 lacs respectively which are sufficient to make investments (accumulated) of ₹ 55147.09 lacs ₹ 39396.25 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. 22. As mentioned elsewhere, the investments generating exempt dividend income were made in earlier A.Ys and we have the benefit of assessment order dated 14.03.2016 framed u/s 143(3) of the Act for A.Y 2013 14. We find that no disallowances were made by the Assessing Officer in his scrutiny assessment case. 23. We further find that the said assessment order was considered as erroneous and prejudicial to the interest of the revenue by the PCIT who, invoking the provisions of Section 263 of the Act, framed an order dated 30.03.2018. The said order was quashed by this Tribunal vide order 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 inve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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