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TMI Blog2014 (9) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement. The entire or whole expenditure has been disallowed as if there was no expenditure incurred by the assessee for conducting business - CIT(A) has positively held that the business was set up and had commenced - Expenditure had to be also incurred to protect the investment made - genuineness of the expenses and the fact that it was incurred for business activities was not doubted by the AO and has also not been doubted by the CIT(A) – Decided against revenue. - ITA No. 486/2014 & ITA No. 299/2014 - - - Dated:- 5-9-2014 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Petitioner : Mr. Kamal Sawhney, Sr.Standing Counel with Mr.Sanjay Kumar, Jr.Standing Counsel For the Respondent : Mr. Satyen Sethi, Advocate with Mr.Arta Trana Panda, Advocate ORDER Sanjiv Khanna, J. (Oral) 1. The following substantial question of law is proposed in these two appeals by the appellant-Revenue which pertain to the Assessment Years 2007-08 and 2008-09:- Whether the Income Tax Appellate Tribunal was right in deleting the disallowance under Section 14A of the Income Tax Act, 1961 amounting to ₹ 8,61,50,315/- in Assessment Year 2007-08 and ₹ 6,60,93,678/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the findings recorded by the Assessing Officer that the business of the respondent- assessee had not been set up or commenced. The CIT(A) observed that the respondent-assessee had been set up with the business objective of making investment in cement industry after due approval given by the Government of India, Ministry of Commerce and Industry vide letter dated 18.12.2002 and 20.12.2012. In fact, the respondent-assessee was not to undertake any manufacturing activity themselves. He referred to the FIPB approval vide letter dated 30.03.2005 granted by Government of India, Ministry of Finance permitting them to make investment in Ambuja Cement Ltd. by acquiring majority stake from the earlier shareholders. Thereupon, the respondent-assessee had purchased shares in the said company of ₹ 1850.91 Crores. Reference was then made to the expenditure as per the financial statement. Section 3 of the Act was elucidated upon to observe that business would be established when the assessee was ready to commence. Revenue expenditure incurred after setting up business should be allowed under Section 37 of the Act but expenditure incurred prior to setting up of business cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent stand than the one taken in the first issue . (The aforesaid submission has been recorded verbatim). 9. The said statement has left us equally confused and perplexed. Is it the Revenue s contention that expenditure made by investment companies should be disallowed under Section 14A of the Act as income or investment is not taxable? This is not clearly stated. We proceeded to read and examine the subsequent observations and findings of the CIT(A). 10. Thereafter, the CIT(A) has referred to the contentions of the assessee that they had not earned dividend income and therefore, Section 14A of the Act was not applicable. The CIT(A) did not agree that as no exempt income was claimed , no disallowance under Section 14A was warranted. The CIT(A) relied on the decision of Special Bench of the Tribunal (Delhi) in the case of Cheminvest Ltd. Vs. ITO., [2009] 317 ITR (A.T.) 86. Reference was made to Maxopp Investment Ltd. Vs. CIT, [2012] 347 ITR 272 to observe that Rule 8D of the Income Tax Rules, 1962 was not applicable in the assessment year 2007-08. Judgment of the Bombay High Court in Godrej and Boyce Manufacturing Co. Ltd.Vs. DCIT, [2010] 328 ITR 81 was also quoted. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings or nexus, specific opportunity has been granted to the appellant based on the facts and submissions made by the appellant, I am satisfied that the expenditure has been incurred by the appellant company in relation to investments which gives rise to income which does not form part of total income. 5.14 Thus from the above discussions, I am of the considered view that once the business of the appellant is of holding investment then it has to be held that in view of specific provisions contained in Section 14A and despite the fact that there is no exempt income that expenditure incurred was for holding and maintaining Investment. 5.15 Therefore, by applying the above judicial decision to the facts of the instant case, I find admittedly and indisputable, entire expenditure incurred to the tune of ₹ 8,75,35,452/- has been incurred for investment and hence in the light of the above factual position, the entire expenditure is not allowable in view of Section 14A of the Act. Thus, disallowance made by the Assessing Officer is confirmed though on a different ground and as such, the appeal preferred by the appellant is dismissed . 11. The CIT(A) did not refer to the factu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the respective companies and this was their line of business. Therefore, the Tribunal observed that there was a contradiction in the submissions made by the departmental representative that the assessee had acquired shares for earning of dividends. After referring to a decision of Chandigarh Bench of the Tribunal in M/s Spray Engineering Devices Ltd., ITA No. 701/Chd./2009 dated 22.06.2012, the appeal of the respondent assessee was allowed. 13. We are confused about the stand taken by the appellant-Revenue. Thus, we had asked Sr.Standing Counsel for the Revenue, to state in his own words, their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to make the said addition. Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondent-assessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. 16. What is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cemen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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