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TMI Blog2010 (10) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... present case is a company which is engaged in the business of manufacturing and/or trading in soaps, detergents, industrial chemicals etc. It is also engaged in the business of shares and securities and derives income from leasing properties. The return of income for the year under consideration was filed by assessee company on 29.10.05 declaring total income of Rs. 'nil' as per the normal provisions of the Act and book profit of Rs. 53,32,12,325/- u/s 115JB. During the year under consideration, the assessee company had earned dividend income of Rs. 21,73,85,180/-from shares and mutual funds which was claimed to be exempt u/s 10(34) and 10(35). According to the A.O., interest as well as some of the administrative expenses incurred by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, it was contended on behalf of the assessee before the A.O. that interest expenditure incurred by it was not at all attributable to earning of dividend income and no disallowance out of the same could be made u/s 14A. 5. The A.O. did not find merit in the submissions made on behalf of the assessee company. According to him, although the assessee is claimed to have made the investment in shares out of surplus funds, it could have utilized the said payments for repaying the borrowing instead of making investment in shares. He held that it was thus an in-direct case of diversion of borrowed funds by the assessee for making investment in shares so as to earn dividend income and since such dividend income was exempt from tax, interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on account of interest expenses. On appeal, the ld. CIT(A) upheld the action of the A.O. in invoking the provisions of section 14A to make the disallowance out of interest and other administrative expenses. He, however, restricted the quantum of such disallowance made by the A.O. to Rs. 6.43 crores by applying Rule 8D of the Income Tax rules 1962 inserted w.e.f. 1.4.08. 6. We have heard the arguments of both the sides and also perused the relevant material on record. As held by the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (ITA No. 626 of 2010 dtd. 12.08.2010), Rule 8D of the Income Tax Rules 1962 is applicable only prospectively i.e. from A.Y. 2008-09. Since the assessment year involved in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated from operation of the assessee company which were more than the net investment of Rs. 40.60 crores made in that year. He has pointed out that the finding given by the A.O. in his order that total investment made by the assessee company in shares at Rs. 335.77 crores as on 31.5.05 was more than its own capital and reserves amounting to Rs. 335.36 crores is factually incorrect. In this regard, he invited our attention to the relevant portion of the written submission filed before the ld. CIT(A) placed at page No. 3 of his paper book to point out that out of the total investment of Rs. 335.77 crores made in the shares, investment of Rs. 19.31 crores was made in the shares of foreign companies, the dividend income of which was liable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court, however, did not accept this contention raised on behalf of the Revenue observing that the judgment of Abhishek Indistries Ltd. (supra) was on the issue of allowability of interest paid on loans given to sister concerns without interest. It was held that the relevant observations recorded in the said judgment therefore have to be read in that context. In the case of Hero Cycles Ltd. (supra), a finding was recorded by the Tribunal that the investment in shares and funds was made by the assessee out of the dividend proceeds and not out of borrowed funds and in view of this finding of fact, it was held by the Hon'ble Punjab & Haryana High Court that the disallowance u/s 14A was not sustainable. Keeping in view the said decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal are accordingly allowed whereas ground No. 3 & 4 are partly allowed. 9. As regards ground No.7, it is observed that the issue involved therein relating to disallowance amounting to Rs. 1,16,125/- made by the A.O. and confirmed by the ld. CIT(A) on account of amortization of premium paid by the assessee for leasehold land is squarely covered against the assessee by the orders of the Tribunal in assessee's own case for earlier years i.e. A.Y. 2000-01 to 2003-04. Respectfully following the said orders of the Tribunal, we confirm the disallowance made by the A.O. and sustained by the ld. CIT(A) on this issue and dismiss ground No. 7 of the assessee's appeal. 10. As regards ground No. 8, it is observed that the issue involved t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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