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TMI Blog2016 (5) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend income is exempted from tax by virtue of Sec. 10(34), interest paid on borrowed capital utilized in purchase of shares, .being expenditure incurred' in relation to dividend income not forming part of assessee's total income, cannot be allowed as a deduction. Further the court held that, such disallowance u/s.14A can be made even in a year in which no exempt income has been earned or received by the assessee. 3.1 The learned CIT(A) erred in allowing additional depreciation on Ready Mix Concrete to the tune of Rs. 15,234/-. 3.2. The learned CIT(A) ought to have appreciated the decision of the Hon'ble Apex Court in the case off CIT vs. N. Boodharaja & Co and others reported in 2045 ITR 412 (SC). Since the preparation of ready mix concrete is nothing but a activity allied to construction activity in lieu of the decision of the Hon'ble Supreme Court, it Is not a manufacturing activity. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 2. Brief facts of the case are that that the assessee is engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from the investment of shares. It was further stated that the assessee has incurred certain administrative expense which is also relatable to earning of exempted income out of investment in shares. The Assessing Officer has observed that though the assessee has not received dividend income, there is a possibility that exempted income may arise out of investment in equity shares. When the Assessing Officer asked the assessee as to why the disallowance under section 14A of the Act should not be made with respect to expenses claimed in relation to exempt income, the assessee has replied that the investment was made by the assessee out of internally generated fund and not out of any loan taken from any banks and that the assessee did not incur any interest expenditure in this regard. The assessee has further referred to the provisions of section14A and Rule 8D(2). The Assessing Officer has observed that that the reserves and surplus available with the assessee do not support huge investment of Rs..70 crores and there is an increase in unsecured loans to the extent of Rs..40,36,86,094/- compared to previous year and the assessee has claimed interest expenditure of Rs..2,85,70,074/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. DR, does not speak anything about the disallowance when no interest expenditure was incurred on the amount received from assessee's group concern. Further, against the unsecured loans, which were put as working capital of the business, the assessee has claimed interest expenditure of Rs..2,85,70,074/-. In the assessment order, the Department has not proved that the unsecured loans were put in use for the purpose of investment. Whereas, the ld. CIT(A) has observed from the account copies of the assessee company and the bank account copy maintained with ICICI Bank that Rs..70.00 crores received from Chettinad Corporation Ltd., a group company was invested directly within same day in Allied Minerals and Metals P. Ltd. for purchase of shares. In view of the above, the onus cast upon the assessee has been proved. 9. The commercial expediency is a matter entirely left to the judgment of the assessee as held by the Hon'ble Madras High Court in the case of Amarjothi Pictures v. CIT 69 ITR 755 and in the case of Aluminium Corporation of India Ltd v. CIT 86 ITR 11(SC). In our opinion, the businessman is only the best judge to determine the business expediency. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. However, on an identical issue in similar facts and circumstances, in the case of Cherian Varkey Construction Co. (P) Ltd. v. ACIT in I.T.A. No. 25/Coch/2014 (TM) for the assessment year 2006- 07, the Cochin Benches of ITAT has held as under: "22. I, therefore, answer the question in the negative and in favour of the Revenue by holding that the assessee is not entitled for additional depreciation in respect of machinery used since production of ready mix concrete would not amount to manufacture of article or thing." Respectfully following the Third Member decision of Cochin Benches of ITAT (supra), we reverse the findings of the ld. CIT(A) on this issue and restore that of the Assessing Officer. Accordingly, the ground raised by the Revenue stands allowed. I.T.A. No. 1544/Mds/2015 14. The only effective ground raised in the appeal filed by the assessee is with regard to sustenance of disallowance made under Rule 8D(2)(iii). Against the disallowance made by the Assessing Officer, the ld. CIT(A), after considering the submissions of assessee as well as various decisions, sustained the disallowance made under Rule 8D(2)(iii). 15. Before us, the ld. Counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Escorts Ltd, 102 TTJ 522, the ITAT Delhi has clearly held that indirect management and administration expenses qualify for disallowance u/s 14A and there is no decision so far by any similar forum contradicting the above findings. Similar view was also taken by ITAT Chennai in the case of Southern Petrochemical Industries (93 TTJ 161) as under: " ... Whether to invest or not to invest and whether to retain the investments or to liquidate the same are very strategic decisions which the management is called upon to take. These are mind-boggling decisions and top management is involved in taking these decisions. This decision-making process is very complicated and requires very careful analysis. Moreover, the assessee had to keep track of various dividend incomes declared by the investee companies and also to keep track of the dividend income having been regularly received by the assessee. That activity itself called for considerable management attention and could not be left to a junior clerk. ", This view has been further supported by the decision of Hon'ble Kerala High Court in the case of Smt. Leena Ramachandran (2011) (339 ITR 293) (Kerala HC)." 18. In view of the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure is composite one, i.e., relating to taxable receipts as well as non-taxable receipts, Assessing Officer is duty-bound to disallow proportionate amount of expenditure relatable to non-taxable or exempted income by invoking provisions of section 14A." 20. In order to arrive at a reasonable amount of expenditure, which may vary from case to case and situation to situation, the legislature, after taking various factors into consideration, came to a conclusion that such expenses can be reasonably calculated @ 0.5% of the average investments made by the assessee. For this purpose, the legislature has arrived at a common formula to calculate the expenses @ 0.5% of the average investments made as per step-3 of the formula given in Rule-8D. Accordingly the legislature incorporated and introduced the Rule-8D. Further, as could be seen from the assessment order, the Assessing Officer has rightly quantified the expenditure under Rule 8D(2)(iii) and disallowed under section 14A of the Act. 21. In view of the above facts and circumstances, we find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the assessee is dismissed. 22. In the result, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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