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TMI Blog2016 (2) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 4.5 crores has been made during the previous year relevant to current assessment year and no fresh loans have been raised. There are fresh funds in the form of sundry creditors & advances from customers which more or less match with the fresh quantum of investment. The secured loan at the year end was Nil. All these facts go to show that the AO has not been able to show-that the borrowed funds have not been utilized for the purpose of business and that they have been diverted to finance the non-business tax exempt activity. Therefore the disallowance u/s 36(1 )(iii) cannot be made - Decided in favour of assessee Disallowance u/s 14A - applicability of rule 8D - Held that:- Assessing Officer has not complied with the requirement of recording dissatisfaction as to the correctness of claim of the assessee as held in Judgement of Delhi High Court in the case of Maxopp Investement [2011 (11) TMI 267 - Delhi High Court] the action of the AO in invoking rule 8D was not justified. Despite the observation, the CIT(A) has upheld disallowance of ₹ 4,22,000 towards administrative expenses. In view of the above discussion, we find that the order of ld. CIT(A) on the issue in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 1 and 4 of the appeal are general in nature, and therefore, not required to adjudicate upon. 5. In ground no. 2, the Revenue has raised the issue of addition of ₹ 55,14,626/- on account of deemed dividend under section 2(22)(e) of the Act. The Assessing Officer observed that an advance from M/. Sharad Enterprises Pvt. Ltd. i.e. another company of Tulip Group was appearing as opening balance in the books of the assessee company. It was further observed by the Assessing Officer that during the relevant previous year, the assessee company subscribed to the share capital of M/s. Sharad Enterprises pvt Ltd and acquired 13,332 equity shares out of 54,996/- equity shares of that company. The Assessing Officer was of the view that the share holding of the assessee company being more than 10 percent. and there was an accumulated profit in the books of M/s. Sharad Enterprises Pvt. Ltd. during the year, the assessee company was liable for deemed dividend in terms of Section 2(22)(e) of the Act. The submissions of the assessee objecting to the proposed addition were not accepted by the Assessing Officer. The ld. CIT(A) observing that the advance was not received during the year a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3.2 The AR has pointed out that U/S 2(22)(e) only the amount received during the year as advance could be brought to tax as deemed dividend and not the amount which was received during the earlier period. 4.3.3 I agree with the submissions of the AR. It is only the payment by a company during the relevant previous year which could be brought to tax (when it satisfies other conditions of section 2(22)(e) as deemed dividend. The phrase used u/s 2(22)(e) is any payment by company . In case the AO's action is to be upheld, then the appellant becomes liable to tax every year as long as the opening balance of advance continues in his books of accounts. This could not be the meaning of section 2(22)( e). Therefore, I find no merit in the addition made by the AO under this head. 5.4 In view of the above discussion, we are of the opinion that no interference is required in the finding of the ld. CIT(A). Accordingly, we dismiss this ground of the appeal. 6. In ground no. 3, the Revenue has contested the deletion of addition of ₹ 72,618/- under Section 36(1)(iii) of the Act by ld. CIT(A). The ld. CIT(DR) relied on the order of the Assessing Officer. 6.1 We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts go to show that the AO has not been able to show-that the borrowed funds have not been utilized for the purpose of business and that they have been diverted to finance the non-business tax exempt activity. Therefore the disallowance u/s 36(1 )(iii) cannot be made. The disallowance of ₹ 72,618 lakhs is therefore deleted. 7. In view of the above discussion, we find that the order of ld. CIT(A) on the issue in dispute is well reasoned and, therefore, no interference is required. Accordingly this ground of the Revenue is dismissed. ITA No. 139/Del/2014, AY 2010-11 8. The following grounds of appeal are raised in the instant appeal: 1. The order of Ld. CIT(A) is not correct in law and facts. 2. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of ₹ 70,72,280/- under Section 14A of the I.T. Act. 3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal. 9. Grounds no. 1 3 are general in nature, therefore, not required to adjudicate upon. 10. In ground no. 2, the Revenue has challenged the deletion of addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the appellant's claim that no expenditure has been incurred for the investment activity. It is a fact that the appellant had a sizeable income from dividend and that it is deploying sizeable funds on this activity. It cannot be said that it is carrying on its investment activity without incurring any tangible expenditure. It cannot be denied that there would be expense towards maintaining investment and there will be allocation of man-power towards taking decision on holding or disposing the said investments. 0.5% of average investment comes to about ₹ 4,22,000/-. Rule 8D is applicable to this year. Therefore, I am of the view that ends of justice would be met if the disallowance is restricted to ₹ 4,22,000/- (in place of ₹ 70,72,280/-) to cover the expenditure relating to investment activity. The ground is therefore partly allowed. 10.2 As seen from the paragraph 5 of the Assessment order, we find that the Assessing Officer has not complied with the requirement of recording dissatisfaction as to the correctness of claim of the assessee as held in Judgement of Delhi High Court in the case of Maxopp Investement ( supra), the action of the AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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