TMI Blog2018 (5) TMI 2166X X X X Extracts X X X X X X X X Extracts X X X X ..... est disallowance. As regards the disallowance of administrative expenditure we find no reason to interfere with the finding of the learned Commissioner of Income Tax (Appeals) who has sustained the addition by keeping in view the investments made in quoted shares as well as unquoted shares as well as looking to the aspect that the assessee is engaged in the business of purchase and sale of shares. Disallowance of penalty levied by Stock Exchange for procedural defaults such a delay in submission of return, etc. - Allowable business expenditure or not? - HELD THAT:- From a perusal of the finding of CIT (Appeals) as well as going through the submissions given by the assessee in the light of the judgment of the Hon'ble High Court of Bombay in the case of CIT vs The Stock Bond Trading Company [ 2011 (10) TMI 172 - BOMBAY HIGH COURT] we are of the considered view that the assessee made no offence prohibited by law which can be contemplated to be covered under Explanation to section 37 of the Act and, therefore, the payment of penalty made by the assessee to the Stock Exchange is a regular business expenditure and the impugned disallowance has rightly been deleted by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not pressing both the grounds raised in cross objections. The learned DR has no objection. We, therefore, dismiss the grounds raised in cross objection of the assessee. 4. Now we are left with the revenue s appeal. Apropos ground no. 1 relating to disallowance u/s 14A of the Act read with Rule 8D, briefly stated the facts are that the assessee declared income of Rs.3,14,87,710/- in the return of income filed for the assessment year 2013-14 on 26.9.2013. Case selected for scrutiny and necessary notices u/s 143(2) and 142(1) of the Act duly served upon the assessee. The Assessing Officer on going through the financial statements observed that the assessee has made investments in quoted/unquoted shares and also incurred expenditure on interest. However, no expenditure has been disallowed u/s 14A of the Act. The Assessing Officer accordingly applying the method provided under Rule 8D of the Income Tax Rules read with section 14A of the Act made disallowance of Rs. 52,26,627/- which comprised of interest disallowance of Rs. 42,64,143/- and disallowance for administrative expenses of Rs. 9,62,484/-. 5. Aggrieved with the findings of the Assessing Officer, the assessee went in app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Decision of Honorable High Court of Bombay in the case of CIT v/s. M/s. Reliance Utilities Power Ltd. (2009) 313 ITR 0340 99 104 (ii) Decision of Honorable High Court of Bombay in the case of CIT V/s HDFC Bank Ltd 366 ITR 505 (2014). 105 109 B While apportioning interest expenditure under Rule 8D(2)(ii), interest expenditure incurred for earning taxable income should be excluded from consideration Decision of Honorable High Court of Delhi in the case of Pr CIT vs Bharti Overseas Pvt Ltd [TS-5584-HC-2015] (2016) 237 Taxman 0417 (Delhi) 110 116 C Only investments yielding exempt income ought to be considered. The Honourable Delhi High Court in the case of ACB India Ltd v/s ACIT [(2015) 374 ITR 0108 (DEL)] has held that for the purpose of Rule-8D, only those investments shall be considered which have actually yielded exempt income during the relevant previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Decision of Honorable High Court of Delhi in the case of CIT v/s. M/s. Holcim India P. Ltd. (2014) 90 CCH 0081 Del HC. Relying upon on the decision rendered by the Punjab and Haryana High Court in CIT Vs. M/s. Lakhani Marketing Incl. ITA No. 970/2008, in which the Honorable court has made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 and held that Section 14A cannot be invoked when no exempt income was earned. Redington India Ltd. V/s Addl. CIT (2016) 97 CCH 0219 (Chennai) Overruling the Circular 5 of 2014 in respect of 14A held that the provision of section 14A r.w.r. 8D cannot be made applicable in a vacuum i.e. in the absence of exempt income. 203 208 Decision of Honorable Gujarat High Court in CIT Vs. Corrtech Energy (P.) Ltd. [(2015) 372 ITR 0097 (Guj) E For the proposition that the disallowance is not tenable where the AO did not recorded proper satisfaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,70,62,695 Investment in quoted units 4,00,00,000 - Grand Total (1+2+3) 18,08,89,206 20,41,04,175 11. The assessee earned dividend income of Rs.38,46,571/- during the year. Total interest expenditure incurred during the year is Rs.2,04,36,402/- and the interest income from FDRs and other sources is Rs.5,79,73,438/- thereby showing net interest income of Rs. 3,75,37,036/-. The assessee has also taken working capital loan on which interest expenditure has been incurred. The above chart clearly shows that the investments during the year majorly consists of investments in unquoted equity shares as well as shares of subsidiary companies valued at Rs.7,71,46,480/-. 12. We also find that the assessee possessed share capital and reserve surplus totaling Rs. 50.86 crores and Rs. 51.67 crores approximately as on 31.3.2012 and 31.3.2013, respectively. These accumulated capital and reserves are much more than the investments made in the equity shares fetching exempted income. As on 31.3.2012 and 31.3.2013 investment in quoted share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be said that the investments yielding exempt income if any were out of borrowed funds and therefore interest qualified for disallowance u/s 14A of the Act. Further asa per the extant legal position also it is held in the case of CIT vs. Reliance Utilities And Power Ltd. (2009) 366 ITR 505 that if both funds are available with the assessee i.e. interest bearing funds and interest free funds then the presumption would arise that investment made would be out of interest free funds available with the company, if the interest free funds are sufficient to meet the investments and in view of the above no presumption can be drawn in the absence of definite material brought on record to show that the interest bearing funds were utilised for investments earning exempt income. No such definite material is on record to show that the brought forward investments are out of interest bearing funds and the investments made during the year are already established to be out of interest free funds. 5.2 It is also to be noted that the appellant further explained that interest income offered of Rs. 30929734/- is mainly received from banks on FDRs and also interest of Rs. 27043704/- received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression does not form part of the total income in section 14A of the envisages that there should be an actual receipt of income which is not includible in the total income during the relevant previous yeasr for the purpose of disallowing only expenditure incurred in relation to the said income/. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year. The decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under section 57(iii) of the Act, where the expression used is for the purpose of making or earning such income . Section 14A of the Act on the other hand contains the expression in relation to income which does not form part of the total income. The decision in Rajendra Prasad Moody cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under section 14A of the Act. 5.4 The A.O. has also rejected the contention of the appellant that investments in shares of unlisted private limited subsidiary companies/associate concerns and the shares held as stock in trade ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estments were made in the shares of widely held quoted/ listed public limited group company. Here the major investment is in the shares of closely held unlisted group companies, shares of which are not quoted. as the gains arising out of sale of such shares is taxable under the head of capital gains and the assessee has never earned any exempt income in respect of these investments. 2 Substantial dividend income was earned from the investments in the shares of investee listed group company. This dividend income was claimed as exempt in return of income. No dividend income has been ever earned by the assessee from the investments in the shares of private companies. In this scenario, the instigation of provision of section 14A in respect of such investment fails abinitio. 3 In Maxopp the investment was made out of borrowed funds on which interest expenditure was incurred. In the present case the investment was made out of own capital reserves and not out of borrowed funds hence no interest was incurred in respect of this investment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As regards the disallowance of administrative expenditure of Rs.9,62,484/-, we find no reason to interfere with the finding of the learned Commissioner of Income Tax (Appeals) who has sustained the addition of Rs. 5,77,013/- by keeping in view the investments made in quoted shares as well as unquoted shares as well as looking to the aspect that the assessee is engaged in the business of purchase and sale of shares. We accordingly uphold the same. 17. In the result, ground no. 1 of revenue s appeal is dismissed. 18. Apropos ground no. 2 wherein the revenue has challenged the deletion of addition of Rs. 1,62,098/- on account of disallowance of penalty and Rs. 15,508/- on account of disallowance of prior period expenses, the learned DR supported the observations of the Assessing Officer whereas the learned counsel for the assessee has relied upon the findings of the learned Commissioner of Income Tax (Appeals). The learned counsel for the assessee also referred to the decision of the Hon'ble High Court of Bombay in the case of CIT vs. Stock Bond Trading Company; ITA No. 4117 of 2010 wherein it has been held that payments made to the stock exchange for violation of their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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