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TMI Blog2005 (3) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... holding the action of the ITO of disallowing the entire interest and other office and administrative expenses in computing the total income for captioned assessment year. 1.2 The CIT(A) failed to appreciate and ought to have held that such expenditure has always been claimed and allowed in the past assessment years as expenditure under the head "business" and that since there are no new facts relevant to the captioned year, the disallowance made by the A.O. is unjustifiable and hence ought to be deleted. 1.3 Without prejudice to the above, the extra expenditure ought to be allowed under the head "other sources" if not under the head "business"." II. Invoking provision of 14A 2.1 "On the facts and circumstances of the case and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure is relatable to dividend income." IV. Addition of interest to cost of acquisition 4.1 "On the facts and in the circumstances of the case and in law, the CIT(A) erred in not giving any effective finding on the alternative ground taken without prejudice to the foregoing grounds, of assuming (without accepting) that the disallowance of interest expenditure is justified under section 14A, either partly or wholly, the amount so held to be disallowable ought to be added as part of cost of acquisition of the shares held by the appellant and thus, be allowed as deductible as and when the relevant shares are sold and taxable capital gains/losses are returned/assessed." V. Initiation of penalty under section 271(1)( c ) 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a )By dividend : Rs. 12,13,286.77 ( b )Interest on debentures : Rs. 2,283.56 ( c )Profit on sale of shares (net) : Rs. 2,24,765.22 5. During the year under consideration, the assessee has shown long term capital gains of Rs. 648 on sale of instruments as mentioned in Annexure-A appended to this order. 6. Under these facts, it is the grievance of the assessee; firstly that since all the expenses were allowed by the revenue in the past, no disallowance could be made for the year under consideration, secondly provisions of section 14A could not be invoked for disallowing entire interest and administrative expenses as also that the dividends are taxable under section 115-O of the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. K.S. Gupta [1979] 119 ITR 372 (AP) 8. For the proposition that no interest could be disallowed for the year under consideration, as the entire interest bearing borrowed funds were brought forward from earlier years, he placed reliance on the decision of Hon ble Karnataka High Court in the case of CIT v. Sridev Enterprises [1991] 192 ITR 165. 9. On the other hand, the learned Departmental Representative relied on the orders of the Assessing Officer and CIT(A). 10. I have carefully considered the rival submissions in the light of the material placed before me. As pointed out earlier, the major income of the assessee is dividend income, which is exempted under section 10(33) of the Act. It is also undisputed that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng borrowed funds and the assessee can establish such nexus, if the matter is sent back to the Assessing Officer. In such circumstances, considering the interest of justice, I am of the opinion that to that extent the matter can be restored back to the file of the Assessing Officer to verify the claim of the assessee and in case, the assessee is able to establish the nexus between the interest bearing borrowed funds and the investments in the debentures on which interest has been earned by assessee to the extent of Rs. 2,283.56, then to that extent interest should be allowed against said income. I direct accordingly. 11. Now, coming to the alternative contention of the assessee regarding consideration of interest as cost relating to inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such disallowance was made, cannot be accepted on the ground that continuance of business activity is a condition precedent for allowability of expenditure. According to section 37 of the Act, these expenses could be allowed only for the purpose of computing income chargeable under the head Profit and gains from business or profession . In the absence of any such profit and also business activity, none of the expenses is allowable and thus the submissions of the assessee cannot be accepted. As regards to the decision Hon ble Karnataka High Court in the case of CIT v. Sridev Enterprises [1991] 192 ITR 165, the said case cannot be said to be an authority to support the case of the assessee, as in the said case, there was no discontin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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