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TMI Blog2015 (5) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... t as per section 172 of the Act, payment made to the nonresident shipping company would not be covered in Sections 194C or 194 of the Act. At this stage it is required to be noted that it is not in dispute that the amount in question was infact paid to the nonresident shipping company. Under the circumstances, the learned Tribunal has rightly deleted the disallowance made by the AO under Section 40(a)(ia) of the Act. - Decided in favour of assessee. - TAX APPEAL NO. 276 of 2015 With TAX APPEAL NO. 277 of 2015 - - - Dated:- 27-4-2015 - MR. M.R. SHAH AND MR. S.H.VORA, JJ FOR THE APPELLANT : MRS MAUNA M BHATT, ADVOCATE JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] As common question of law and facts arise in both these Tax Appeals challenging the impugned common judgment and order passed by the learned Income Tax Appellate Tribunal, both these Tax Appeals are heard, decided and disposed of together by this common judgment and order. [2.0] Feeling aggrieved and dissatisfied with the impugned judgment and order dated 10.10.2014 passed by the learned Income Tax Appellate Tribunal, B Bench, Ahmedabad (hereinafter referred to as Tribunal ) in ITA No.61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings, AO noticed that the assessee had made investment of ₹ 21,14,07,850/in shares and mutual funds. The assessee suo moto offered/disallowed amount of ₹ 2 lacs on account of Section 14A of the Act. As the AO observed that the assessee is not able to justify that the investment made in shares is from his own funds or from the funds on which no interest payment is made by the assessee and therefore, the provision of Section 14A of the Act is applicable and since the assessee has not offered disallowance worked out under Section 14A of the Act, a show cause notice was issued and served upon the assessee and the assessee was called upon to show cause as to why the disallowance under Section 14A of the Act should not be made. In response to the said showcause notice the assessee submitted its reply and explanation. Having not satisfied with the explanation given by the assessee, the AO disallowed ₹ 14,06,934/by observing that the assessee made investment in shares and mutual funds amounting to ₹ 21,14,07,850/and interest expenses of ₹ 40,10,861/and that the assessee is not able to justify that the investment was made out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently dismissed the appeal preferred by the Revenue insofar as challenging the deletion of disallowance made by the learned CIT(A) and also confirmed the order passed by the learned CIT(A) in deleting the disallowance made under section 40(a)(ia) for nondeduction of TDS on overseas freight. [3.6] Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Tribunal, the Revenue has preferred the present two Tax Appeals with the aforesaid substantial questions of law. [4.0] Mrs. Bhatt, learned Counsel appearing on behalf of the appellant - Revenue has vehemently submitted that the learned Tribunal has materially erred in deleting the disallowance of interest expenses under Section 14A of the Act in its entirety. It is submitted that the learned Tribunal has not properly appreciated the fact that the dispute with respect to the AY 200910 and therefore, Rule 8D of the Rules which had come into force with effect from March 2008 would be applicable. It is submitted that it is neither the learned CIT(A) nor the learned Tribunal which disputed that there were mix kind of expenses and therefore, in that view of the matter Rule 8D would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which the investment was made. Therefore, by observing in paras 6 to 9 extracted hereinbelow, the learned Tribunal has deleted the entire disallowance of ₹ 12,06,934/made by the AO under section 14A of the Act. 6. We have heard the rival submissions and perused the orders of lower authorities and material available on record. The undisputed facts of the case are that the Assessing Officer observed that the assessee has made investment of ₹ 21,14,07,850/and the assessee has paid interest on borrowed funds of ₹ 40,10,861/. He also observed that the assessee has not made disallowance of interest expenditure according to section 14A read with Rule 8D of the Act. He therefore computed the proportionate disallowance of interest expenditure at ₹ 5,84,706/and disallowed the same. Before the Commissioner of Income Tax (Appeals), the assessee submitted that the assessee had borrowed funds for the purposes of vehicle and old loan of ₹ 2005/for Captive Power Plant, and therefore no borrowed funds were used for nonbusiness purposes. Further, the assessee relied upon the decision of the Hon ble Supreme Court in the case of S A Builders (supra) and Munjal Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee of ₹ 2,00,000/in earning tax free divided income. In the circumstances, in our considered opinion, disallowance of ₹ 6,22,228/could not have been made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals). Our above view finds support from the decision of the Hon ble Delhi High Court in the case of CIT vs. Consolidated Photo Finvest Ltd. (2012) 211 Taxman 184 (Del.). Therefore, we set aside the orders of lower authorities and delete the disallowance of ₹ 6,22,228/. Thus, ground no.1 of appeal of the assessee is allowed. We are in complete agreement with the view taken by the learned Tribunal and the reasons given by the learned Tribunal while deleting the disallowance of interest expenses under Section 14A of the Act. [5.2] Now, so far as the contention on behalf of the appellant with respect to applicability of Rule 8D of the Rules with effect from 31.03.2006 is concerned, there cannot be any dispute about the same. However, it is required to be noted that the AO made the disallowance under Section 14A of the Act solely on the ground that the assessee failed to justify that the investment was made out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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