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TMI Blog2013 (12) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... funds utilised for purchasing equity shares. 4. The facts as culled out from assessment order are that the assessee, dealing in shares and also doing investment counselling, had filed return of income declaring a loss of Rs. 3,48,57,095 for the impugned assessment year. Such loss was reduced to Rs. 3,45,49,595 through a revised return filed. During the course of assessment proceedings, it was noted by the Assessing Officer that the assessee had substantial unsecured loans coming to Rs. 1,27,13,79,000 as at the end of the relevant previous year. The Assessing Officer further noted that assessee had invested in shares of one M/s. Sringaravalli Consultants P. Ltd. for a sum of Rs. 10,99,00,000 and had also paid share application money of Rs. 47,51,00,000 to the same company. The profit and loss account of the assessee showed a sum of Rs.3,95,63,859 as interest charged on the loans taken by it. The Assessing Officer was of the opinion that interest on borrowed funds in so far as it was utilised for acquiring shares and giving share application money could not be considered as business expenditure. A pro rata disallowance of Rs.1,38,93,443 was made. 5. The Assessing Officer also foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on money paid to the said company were shown by the assessee as investment in its books of account. In the opinion of the Commissioner of Income-tax (Appeals), such investment yielded dividend which was exempt from tax. Just because capital gains would also arise when such shares were sold, would not alter the position in any manner. As per the Commissioner of Income-tax (Appeals), the intention with which the expenditure was incurred was not a criteria to be adopted for applying section 14A of the Act. Expenditure incurred by the assessee had direct nexus with earning dividend income. Further, as per the Commissioner of Income-tax (Appeals), loans on which interest was paid by the assessee, were fully utilised in making investment and therefore, expenditure in the nature of interest on such loans, would be in capital field and could not be justified as allowable on the reasons of business expediency. The Commissioner of Income-tax (Appeals) also found that rule 8D clearly specified that expenditure whether direct or indirect, not attributable or relatable to earning of taxable income, had to be disallowed. The assessee having admitted dividend income of Rs. 10,11,449, it could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transport Finance Co. Ltd. v. Asst. CIT in I.T.A. No. 701/Mds/2012 dated June 28, 2012, that of the Mumbai Bench of the Tribunal in the case of Avshesh Mercantile P. Ltd. v. Deputy CIT (I. T. A. No. 5779/Mum/2006 dated June 13, 2012 and that of the hon'ble Bombay High Court in the case of CIT v. Delite Enterprises Ltd. (I.T.A. No. 110 of 2009 dated June 26, 2007). According to him, in the case of Shriram Transport Finance Co. Ltd. (supra), this Tribunal had considered judgment of the hon'ble Delhi High Court in the case of Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272 (Delhi), where it was clearly held that recording of dissatisfaction with the correctness of the claim of expenditure or claim of no expenditure made by the assessee was a prerequisite for invocation of rule 8D. In any case, according to the learned authorised representative, the hon'ble Delhi High Court had, in the latter case, held that rule 8D would apply only from March 24, 2008 and not prior to that. Strong reliance was placed on the decision of the hon'ble Karnataka High Court in the case of CCI Ltd. v. Joint CIT [2012] 71 DTR 141 (Karn) for arguing that when shares were retained, not with an intention of ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t day of the relevant previous year. The assessee had also returned short-term capital gains on the sale of shares effected by it. Acquisition of shares in M/s. SCPL, whether as investment or as stock-in-trade, in such circumstances, could not be considered as something done outside the course of business of the assessee. Therefore, the finding of the Commissioner of Income-tax (Appeals) that pro rata interest on funds relatable to such investment was an outgo in capital field is, in our opinion, incorrect. An assessee can take any amount of loan for the purpose of its business and such loans can be used for the purpose of acquiring fixed assets or current assets. As long as such fixed assets and current assets were relatable to its business, interest on loans paid for acquiring such assets are nothing but business expenditure of the assessee. Therefore, the view of the Assessing Officer that interest relatable to borrowed funds attributable to investment of shares of M/s. SCPL and for placing share application money with the said company could not be considered as business expenditure, cannot be accepted. Similarly, the view of the Commissioner of Income-tax (Appeals) that such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the assessee in so far as application of section 14A is considered. 14. Though the learned Departmental representative did not rely on the decision of Maxopp Investment Ltd. [2012] 347 ITR 272 (Delhi) of the hon'ble Delhi High Court, it is very relevant since the learned Commissioner of Income-tax (Appeals) has mentioned that one of the claim made by the assessee before him was that shares were held for having controlling interest. Argument of the assessee in Maxopp Investment Ltd. also was that such shares were held as a part of its business for acquiring control over the companies in which it was holding the shares. The hon'ble Delhi High Court rejected this line of reasoning and held that even if shares were acquired for getting controlling interest, still section 14A applied, if dividend income is received from such shares and such dividend income was claimed exempt. Their Lordships held that the words "in relation to" used in section 14A was a very broad expression and wide import having direct and indirect significance depending on context. Nevertheless, their Lordships observed that if an Assessing Officer rejected a claim of taxpayer that no expenses were incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares, which were purchased, are sold and the income derived therefrom is offered to tax as business income. The remaining 37 per cent. of the shares are retained. It has remained unsold with the assessee. It is those unsold shares have yielded dividend, for which, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside." In other words, the hon'ble Karnataka High Court held that there could be no disallowance when shares wer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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