9911796707
TMI Blog2015 (6) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... out of total addition of Rs. 1,73,796/- made by A.O. u/s 36(1)(iii) of I. T. Act, 1961. 2. At the outset, Ld. D.R. submitted that the assessee had made investment in shares and the income from which is exempt and, therefore, as per the provisions of Section 14A, disallowance was mandatory and in view of the application of Rule 8D, the A.O. had rightly made addition of Rs. 12,25,610/-. It was submitted that the A.O. has held that irrespective of receipt of exempt income, the addition has to be made u/s 14A if the assessee had made investment and income of which is exempt under the provisions of the Act. Regarding second addition, Ld. D.R. heavily relied upon the assessment order. 3. Ld. A.R. on the other hand submitted that there was no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of transaction 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 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. In ground No.1 of appeal, the appellant has challenged the disallowance of interest of Rs. 1,73,796/ - made by the AO by invoking the proviso to section 36(l)(iii) of the Act in respect of interest paid on term loan and the funds utilized out of CC account for acquisition of assets. As per the proviso to section 36(1)(iii), any amount of the interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business, whether capitalized in the books of account or not, for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Therefore, the disallowance of interest pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verdraft account, were sufficient to meet the advance tax liability. It should, therefore, be presumed that in essence and in their true character, the taxes were paid out of the profits of the year and not out of the overdraft account from the running of the business. The impugned interest was, therefore, not relatable to the payment of advance tax and hence could not be disallowed in computation of the assessee's business income." In a latter decision, the Hon'ble Mumbai High Court in the case of reliance Utilities and Powers Ltd. (221 CTR 435) has held that- "If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments." The principle that follows from the above judicial rulings is that when the sale proceeds, recoveries from the debtors and internal accruals etc. are deposited by the assessee in OD/CC account and the investment in assets is made which are not put to use in business, the disallowance of interest cannot be made only on the ground that the payments have been made from OD I CC account, provided the internal accruals are sufficient to meet the investments made in the assets. The appellant has further contended that the internal accruals were to the extent of Rs. 1.23 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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