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TMI Blog2012 (6) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... cide how much is reasonable expenditure having regard to the circumstances of the case. No business man can be compelled to maximise his profit. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view of whether the amount was advanced for earning profit. The money which was borrowed by the assessee from ICICI Bank was utilised for the purpose of acquisition of shares of APGPCL for the purpose of business advantage and it cannot be considered as investment in relation to earning of income exempted from tax. The benefit derived by the assessee by this investment is more than interest incurred by the assessee towards loan from ICICI Bank. The investment in the shares by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s substantial and, therefore, the CIT ought to have held that the investment made in the units of APGPCL is for the purpose of business and the interest on the amount borrowed for such investment is allowable as a deduction under the head 'business'. 5. The CIT erred in setting aside the order passed u/s 143(3) r.w.s. 153A of the IT Act. He ought to have seen that there is no mistake which is prejudicial to the interest of revenue in the order of the assessing officer originally passed. 3. Brief facts of the issue are that the assessee is a company assessed under jurisdiction of DCIT Central Circle, 7 Hyderabad. The scrutiny assessments u/s 143(3) r.w.s. 153A of the Income Tax Act for the assessment years 2001-02 to 2004-05 was complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the resultant capital gains on sale of shares of APGPCL were claimed as exempt u/s 10(23G) of the Act. According to CIT, the expenditure incurred in the form of interest in respect of loan availed from ICICI Bank for the purpose of purchase of shares of APGPCL needed to be disallowed as per section 14A of the Act. 3.3. However, it is observed by CIT that the assessing officer failed to disallow the expenditure claimed towards interest paid on loans taken against exempt income while completing the scrutiny assessments u/s 143(3) r.w.s. 153A of the Act for the assessment years 2001-02 to 2004-05. In view of the above fact, according to CIT, the assessment orders passed u/s 143(3) r.w.s. 153A on 31.12.2008 for the assessment years 2001-02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d earning such exempt income is to be allowed. iii) and finally, held that assessee has paid interest of borrowed fund which has been invested in shares of another company to earn exempt income. Hence, the interest paid on borrowed fund cannot be allowed as a business deduction as per provision of section 14A. According to CIT, the assessing officer while passing assessment order has erroneously allowed this deduction which has rendered the orders passed for assessment year 2001-02 to 2004-05 as erroneous as prejudicial to the interest of revenue. Accordingly, these orders are liable to be revised u/s 263. Therefore, the assessment orders passed u/s 143(3) r.w.s. 153A for the assessment year 2001-02 to 2004-05 are set aside u/s 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbai (102 ITD 110) (Mum) and Addl. CIT vs. Pinnacle Project and Infrastructure Pvt. Ltd. (104 ITD 122) (Ahd.). Similarly, the DR relied on the judgement of Special Bench in the case of ITO vs. Daga Capital Management Pvt. Ltd. (117 ITD 169) (Mum) (SB) for the proposition that there should be disallowance of expenditure incurred by the assessee in relation to income which does not form part of total income under the Act and thus, in view of specific provisions of section 14A, expenses falling under any head or section which are otherwise deductible as business expenditure or under other respective heads, would call for disallowances to the extent to which those expenses have been incurred in relation to income exempt from tax. 6. In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MOU was executed by APGPCL and APSEB (Transmission Corporation of Andhra Pradesh) and 23 other companies which include Sree Rayalaseema Alkalies and Allied Chemicals Ltd. in order to be entitled for supply of 7.20 MW electricity. The said Sree Rayalaseema Alkalies and Allied Chemicals Ltd., has disposed of its shares in the APGPCL and the assessee company bought the shares by raising a loan from ICICI Bank. By purchasing the shares of APGPCL the assessee got supply of power at concession rate. The cost per unit incurred by the assessee in this assessment year is much less than the cost of power supplied by APSEB. This fact is evident from the following table: AY Units purchased from APGPCL Unit cost APGPCL Amount (in Rs.) Unit cost AP ..... X X X X Extracts X X X X X X X X Extracts X X X X
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