9911796707
TMI Blog2012 (9) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... s disallowance under Section 36(1)(iii) was not warranted - against revenue. Disallowance u/s 14A - investments made by the assessee were not out of any surplus funds - CIT(A) deleted the addition - Held that:- There is no dispute that during these two years, Rule 8D of Income-tax Rules, 1962, was not applicable in view of the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd [2010 (8) TMI 77 - BOMBAY HIGH COURT] as Rule 8D applicable from Assessment Year 2008-09 and assessment years in question is 2006-07 and 2007- 08 thus the matter requires a re-visit by the A.O as disallowance for earlier period to be determined on reasonable basis - in favour of revenue for statistical purposes. Disallowance u/s 14A - CIT(A) partially deleted the disallowance to third limb of Rule 8D, i.e. 5% on the average value of investments - Held that:- As D.R. fairly admitted that Rule 8D was applicable from impugned assessment year and therefore, the A.O. was obliged to compute the deduction in accordance with the said rule & had not applied Rule 8D for making disallowance under Section 14A the matter has to go back to the A.O. for consideration afresh, in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans were used for the above mentioned investments. Reply of the assessee was that the investment made in UTI Money Market Fund was out of idle funds available with it and not from any borrowed funds. As for the acquisition of shares in MPIPL, reply of the assessee was that the said company was also engaged in a business of security services in Mumbai and the acquisition was done as a part of the expansion programme of business of the assessee. As per the assessee, it was in the same line of business. However, the A.O. was not impressed. According to him, the investment in UTI Money Market Fund was done from funds lying in a bank account of the assessee with M/s UTI Bank and such bank account had in it both borrowed funds as well as business surplus. As per the A.O., assessee could not discharge the onus lying on it to prove that investments were out of own funds. Reliance was placed by the Assessing Officer on the decision of Hon'ble jurisdictional High Court in the case of CIT v. Coimbatore Salem Transport Pvt. Ltd. (61 ITR 480), Mr. Mohd. Ali v. CIT (38 ITR 413), Indian Metals & Ferro Alloys Ltd. (193 ITR 344), Phaltan Sugar Works Ltd. v. CIT (208 ITR 989), R. Dalmia v. CIT (133 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that in the said case, borrowed funds were advanced to partners and therefore, facts were entirely different. Further, as per the CIT(Appeals), a disallowance under Section 14A was not sustainable since funds for the investments had gone out of a common kitty and therefore, could not be stated that any borrowed funds were used for the purpose of such investments. He, therefore, deleted the disallowance made by the Assessing Officer for all these years. 6. Now before us, learned D.R. strongly assailing the orders of CIT(Appeals), submitted that the resource and surplus available with assessee were all used for funding the sundry debtors. Assessee could not establish a one-to-one match between own funds and investments in shares as well as UTI Money Market Fund. According to learned D.R., the disallowances were made by the Assessing Officer under Section 36(1)(iii) of the Act since it was not for the purpose of business of the assessee and the A.O. had not relied on Section 14A for making the disallowance. Investment made in MPIPL was in the form of shares of the company and assessee was in receipt of substantial dividends from the said company. It had received ₹ 10,28,780 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs. When viewed against the substantial reserves and surplus available with assessee, we cannot say for definite that any loan funds were utilized for the purpose of investments. There is a clear finding by the A.O. himself that borrowed funds as well as business surplus formed a composite fund and investments were made out of such funds. No doubt, assessee was unable to show a one-to-one matching between the investments and surplus funds. However, the Assessing Officer has also not been able to bring out any link between borrowed funds and investments. Share purchased by the assessee in M/s MPIPL was for having controlling interest therein. Assessing Officer himself has noted that assessee had purchased 1216 out 2200 shares from the promoters of the said company. It is also not disputed that the said company was engaged in the same line of business. Contention of the assessee that the investments were made for commercial expediency for expansion of its business in Mumbai, ought not have been brushed aside. No doubt, Hon'ble jurisdictional High Court in the cases of Coimbatore Salem Transport Pvt. Ltd., Mr. Mohd. Ali, Indian Metals & Ferro Alloys Ltd., Phalton Sugar Works Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 3,57,000/- and ₹ 2,52,869/- and interest payment of ₹ 8,28,000/- and ₹ 11,41,323/- respectively in its Profit & Loss account. Based on his finding for preceding assessment years 2004-05 and 2005-06, Assessing Officer came to a conclusion that assessee had made such investments out of borrowed funds. As per the A.O., dividends received from M/s MPIPL were exempt and therefore, a disallowance under Section 14A of the Act was called for. He disallowed the finance charges and interest payments for these years, relying on Section 14A of the Act. In other words, for these years, he chose to make the disallowance under Section 14A, rather than Section 36(1)(iii) he applied for the earlier years. 14. Assessee moved in appeal for both the years. Argument of the assessee was that it had interest free funds of ₹ 8,13,45,801/- in the previous year relevant to assessment year 2003-04 and ₹ 10,90,94,431/- in the previous year relevant to assessment year 2004-05 and the investments considered by the Assessing Officer all pertained to earlier years. As per the assessee, since investments were made out of own funds and no borrowed funds were involved, disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year, the A.O. shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-r. (2) of r. 8D. We may observe that r. 8D(1) places the provisions of s. 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of sub-ss. (2) and (3) of s. 14A, the condition precedent for the A.O. to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the A.O. is required to determine the amount of expenditure in relation to income not includible in total income in the manner indicated in sub-r. (2) of r. 8D of the said Rules. 31. It is, therefore, clear that determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation afresh in accordance with law. 19. Appeals of the Revenue for assessment years 2006-07 and 2007- 08 are treated as allowed for statistical purposes. 20. This leaves with last appeal of the Revenue, which is for assessment year 2008-09. 21. In this appeal, Revenue is aggrieved that CIT(Appeals) partially deleted the disallowance made by the A.O. under Section 14A of the Act. As per the Revenue, CIT(Appeals) ought not have restricted the disallowance to third limb of Rule 8D, i.e. 5% on the average value of investments. 22. Facts giving rise to the disallowance for impugned assessment year are also similar to that of preceding assessment years, namely, assessment years 2006-07 and 2007-08. A.O. had for the impugned assessment year also made a disallowance under Section 14A of the Act for the interest charges claimed by the assessee. Nevertheless, A.O. did not apply Rule 8D, despite such rule being applicable for impugned assessment year. 23. On assessee's appeal, CIT(Appeals) held that no disallowance of interest was called for, since assessee had substantial surplus funds available with it for making the investment in shares of MPIPL. Nevertheless, the CIT(Appeals) gave a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
