9911796707
TMI Blog2013 (10) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... ing note of the judgment of the Hon’ble Supreme Court in the case of Punjab State Industrial Development Corporation[1996 (12) TMI 6 - SUPREME Court], it was held that expenditure incurred for expansion of capital base is capital in nature - Also rejected the alternate claim of the assessee for allowing the expenditure u/s 35D of the IT Act on the ground that there was no evidence for issue of capital in connection with extension of the existing business or for setting up of a new business – Matter restored to the file of AO for passing afresh order after detailed examination and after allowing opportunity of hearing to the assessee – Decided against the Assessee for statistical purpose. - ITA No. 2942/Mum/2011, ITA No. 2719/Mum/2011, ITA No. 8517/Mum/2011, ITA No. 533/Mum/2012 - - - Dated:- 27-9-2013 - Shri Rajendra Singh And Shri Amit Shukla,JJ. For the Appellant : Shri Hriday Narain For the Respondent : Ms. R. M. Madhavi ORDER Per Rajendra Singh, AM. These cross appeals are directed against the orders of CIT(A) dated 29.10.2010 and 24.10.2011 for assessment years 2007-08 and 2008-09. These appeals which were heard together and have common issues are bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 35D also, aggrieved by which the assessee is in appeal before Tribunal. 2.1.2 Before us the learned AR for the assessee submitted that similar issue of allowability of funds raising expenses had been considered by the Tribunal in assessee own case in assessment year 2006-07 and the issue has been set aside by the Tribunal to the file of AO. It was, therefore, urged that this year also the issue may be restored to the file of AO. The learned DR fairly conceded that the issue was covered by the decision of Tribunal. 2.1.3 We have perused the records and considered the matter carefully. The dispute is regarding allowability of claim of funds raising expenses. The assessee during the year had incurred expenditure of Rs. 2,70,35,500/- for issue of fresh capital through Qualified Institutional Placement (QIP) route. The expenditure had been claimed as revenue expenditure. The authorities below following the judgment of Hon'ble Supreme court in case of Punjab State Industrial Development Corporation (supra) have held that expenditure incurred for expansion of capital base is capital in nature. They have also rejected the alternate claim of the assessee for allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The dispute is regarding disallowance of expenses relating to exempt dividend income. The disallowance of expenses relating to exempt income u/s 14A is required to be computed as per rule notified by the Government. Government have since notified Rule 8D for this purpose. However Hon'ble High Court of Bombay in case of Godrej Boyce Manufacturing Co Ltd.(328 ITR 81) have held that Rule 8D is applicable only from assessment year 2008-09 and in respect of prior years it has been held that disallowance of both indirect and indirect expenses has to be made on a reasonable basis after allowing opportunity of hearing to the assessee. The assessment year involved in the present appeal is assessment year 2007-08 and, therefore, Rule 8D is not applicable. We, therefore, set aside the order of CIT(A) and restore the matter to the file of AO for passing afresh order after necessary examination in the light of judgment of the Hon'ble High Court of Bombay in case of Godrej Boyce Manufacturing Co Ltd. (Supra) and after allowing opportunity of hearing to the assessee. 3. The appeal of the department in assessment year 2007-08 in ITA No. 2719/Mum/2011. The only dispute raised by the revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the which the revenue is in appeal before Tribunal. 3.4 Before us the learned DR appearing for the revenue assailed the order of CIT(A). It was submitted that before the AO the assessee had not produced any evidence that investments/advances had been made on commercial expediency or that were interest bearing. The CIT(A) had allowed the relief on the basis of fresh material which was not justified. The learned AR for the assessee submitted that he had no objection if the matter was sent to the AO for necessary verification. 3.5 We have perused the records and considered the matter carefully. The dispute is regarding disallowance of interest in relation to investments/advances of Rs. 1crore, Rs. 5 lakh and Rs. 4.04 crore. The AO had disallowed the interest on the ground that the assessee failed to produce any evidence to show that investments/advances were for the purpose of business. In appeal CIT(A) has allowed the relief apparently based on some fresh material submitted before him. The assessee has submitted that the deposits was in connection with use of office premises and the deposit of Rs. 4.04 crore was interest bearing and the balance investment of Rs. 5 lakh on com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h law. The learned DR had no serious objection in the matter and placed reliance on the findings of authorities below. 4.1.4 We have perused the records and considered matter carefully. The dispute is regarding disallowance of expenses relating to exempt income. Disallowance of such expenses u/s 14A is required to be made as per method prescribed by the Government. The Government have since notified Rule 8D for this purpose. There is no dispute that Rule 8D is applicable for the assessment year under consideration. However we note that section 14A clearly provides that the AO will proceed to make disallowance as per Rule 8D only after he is not satisfied about the correctness of the claim of the assessee. In this case the assessee had claimed that it had not incurred any interest expenditure or any other direct expenses and the indirect expenses were only nominal. The AO had not recorded any finding on this claim of the assessee nor it has been done by the CIT(A). Therefore, in our view, applying Rule 8D straightaway without recording any finding on the claim of the assessee is not correct. We, therefore, set aside the order of CIT(A) and restore the matter to the file of AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to why proportionate disallowance should not be made. The assessee explained that advances to subsidiary of Rs. 96.06 crore had been made from own funds raised through QIP issue and, there were no borrowings involved. Therefore, there was no interest expenditure. The deposit of Rs. 1,00,00,000/- was explained in connection with taking the furnished office premises on leave and license for which security deposit had to be given. As regards the inter corporate deposit it was submitted that the same was interest bearing. It was accordingly urged that no disallowance should be made. The AO accepted the claim in relation to advance to subsidiary. In relation to other advances/deposits the AO observed that the assessee had not explained the business purpose of such advances/deposits. He, therefore, disallowed the interest in relation to three items which came to Rs. 62,05,065/-. 5.3 In appeal, CIT(A) accepted the claim of the assessee that the investment of Rs. 5,00,000/- in the wholly own subsidiary was on commercial expediency and so was the deposit of Rs. 1,00,00,000/-. CIT(A) also held that inter corporate deposit was interest bearing. He, therefore, directed the AO the delete th ..... 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