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TMI Blog2014 (11) TMI 771X X X X Extracts X X X X X X X X Extracts X X X X ..... ome - Therefore, it is not the case of the surplus fund parked by the assessee in the bank account for earning the interest or otherwise advanced for earning the interest but the interest earned by the assessee is part of its business activity - for the purpose of disallowance of interest u/s 14A, the interest income being the main business activity of the assessee cannot be set off against the business expenditure to the extent of borrowed fund used for investment in shares – for the purpose of working out the quantum of disallowance as per Rule 8D, the investment made in subsidiaries for the purpose of holding the stake should be executed from the average investment – the AO is directed to re-compute the disallowance made u/s 14A on account of administrative expenses - thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of assessee. Expenses on securing the power supply and towards protection from encroachment of land held as stock in trade disallowed – Capital expenses or not – Held that:- Though the assessee has claimed that the land was held as stock-in-trade, this was not shown in the P&L account but directly taken into balance sheet - i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n partially sustaining the balance disallowance of expenditure ₹ 2,60,588/- incurred ) for securing the power supply and towards protection from encroachment etc. of the land held as stock in trade and in holding the same to be capital expenditure. 2. Ground No. 1 is regarding disallowance u/s 14A. 3. During the course of assessment proceedings, the Assessing Officer noted that while the assessee has claimed dividend income of ₹ 2,04,40,000/- being exempt u/s 10(34), it had not made any corresponding disallowance of expenses u/s 14A. The Assessing Officer, therefore, asked the assessee to show-cause as to why a suitable disallowance should not be made as per the provisions of Rule 8D of Income Tax Rules. In response, the assessee submitted that it had not incurred any expenditure for earning the dividend income in question as the dividend received by the assessee, was directly deposited in the bank account in routine manner. Thus the Ld. Authorized Representative submitted that no disallowance of any part of the income is called for. The assessee has also submitted that the reserve and surplus fund has increased from ₹ 570.61 crores to 579.57 crore during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest expenditure cannot be made more than the proportionate period of use of borrowed fund. Further during the year under consideration, the assessee has sold the mutual funds and to that extent the fund was available with the assessee for making investment during the year. He has relied upon the following decisions:- (i) Garware Wall Ropes Ltd. (Mum-ITA No. 5408/Mum/2012 and 4957/Mum/2012 (ii) JM Financial Ltd. (Mum)-ITA no. 4521/Mum/2012 (iii) EIH Associated Hotels Ltd. (Chen)-1503/Mds/2012. (iv) Walfort Share and Stock Brokers P. Ltd. 236 ITR 1(SC) 6. On the other hand, the Ld. DR has submitted that during the year under consideration, the assessee has purchased as well as sold the investment, therefore, the high level decision was taken by the assessee for sale and re-investment and accordingly the provisions of section 14A are applicable for disallowance of expenditure. He has further submitted that the assessee has paid the interest on the borrowed funds, therefore, the fact of use of borrowed fund itself shows that the assessee s own fund was not available for making investment during the year. Even otherwise, the assessee has failed to establish the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the assessee cannot be set off against the business expenditure to the extent of borrowed fund used for investment in shares. Since the issue has not been properly examined on the point of availability of the assessee s own fund and investment in question in the subsidiary and group concern as well as the duration of use of borrowed fund and the investment whether it is a long term investment in the subsidiaries or not. Accordingly, we set aside this issue to the record of Assessing Officer to reconsider and decide afresh after giving a proper opportunity of hearing to the assessee. 8. As regards the administrative expenses to be disallowed u/s 14A. Though, the assessee has contended that it has not incurred any expenditure for earning the dividend income, however, it is manifest from the record that the assessee has disposed off some investments and also made new investment during the year, therefore, high level administrative machinery of the assessee is involved for taken the decision of sale of investment and making new investment. Once the administration of the assessee is involved in decision making process in respect of the investment, the provisions of section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock in trade in Profit Loss Account and it was shown directly into the balance sheet. Therefore, the expenditure incurred relating to the land not included as stock in trade in P L account cannot be allowed. 15. Having considered the rival submissions as well as relevant material on record, we note that though the assessee has claimed that the land in question was held as stock-in-trade, however, this was not shown in the P L account but directly taken into balance sheet. The CIT(A) has considered the issue in para 4.2 as under:- The appellant has objected to the said disallowance on the grounds that any expenditure incurred with regard to stock in trade cannot be capital in nature. I am in agreement with the appellant that expenditure incurred with regard to stock in trade cannot be capital. Having said that, it cannot be denied that, barring ₹ 76,050/- incurred on tiling of the land, the balance expenditure would go to enhancing the value of the stock in trade. Therefore, expenditure of ₹ 2,60,588/- should be added to the closing stock and simultaneously allowed as expenditure u/s 37(1). In the result, the appellant gets a relief of ₹ 76,050,/-. This ..... 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