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TMI Blog2016 (5) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... funds for business) are mixed and the share capital and reserves which is claimed to be interest free funds is much less than the fixed assets and current assets and therefore no interest free funds were available to the assessee for being utilized in capital work-in-progress. In this factual matrix of the case, we find no reason for interference in the impugned orders of the learned CIT(A) on this issue of proportionate disallowance of interest attributable to capital work-in-progress and therefore uphold the impugned orders for assessment years 2006-07 to 2010-11. Consequently, the assessee’s grounds 2(a) to (c) for assessment years 2006-07 to 2010-11 are dismissed. Disallowance under section 14A r.w. Rule 8D - Held that:- In the case on hand admittedly, the factual position was that the assessee had not earned or received any exempt income in the previous years relevant to assessment years 2009-10 and 2010-11. In these circumstances, in our considered view, the ratio of the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (2015 (9) TMI 238 - DELHI HIGH COURT) would apply squarely in the case on hand wherein held that no disallowance under section 14A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently taken up for scrutiny. The assessment was concluded under section 143(3) of the Act vide order dated 22.06.2009, wherein the assessee s income, under normal provisions, was determined at ₹ 2,28,94,930/- in view of certain additions/disallowances and the book profits under section 115JB of the Act were computed at ₹ 19,55,597/-. On appeal, the learned CIT(A) disposed off the assessee s appeal vide the impugned order dated 06.12.2010 allowing the assessee partial relief. 2.3 For A.Y. 20009-10, the assessee filed its return of income on 29.09.2009 declaring total income of ₹ 2,7874,39,050/-. The return was processed under section 143(1) of the Act and the case was taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 19.12.2011, wherein the income of the assessee, under normal provisions, was determined at ₹ 3,28,91,224/- in view of certain additions/disallowances and the book profits under section 115JB were computed at ₹ 3,38,22,870/-. On appeal, the learned CIT(A) disposed off the assessee s appeal vide the impugned order dated 14.05.2012 allowing the assessee partial relief. 2.4 For A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of value. (c) The learned Commissioner of Income Tax (Appeals) erred in not treating the investment made in purchase of 100% shares of Amroon Foods Pvt. Ltd. with regard to commercial expediency. (d) The learned Commissioner of Income Tax (Appeals) erred in not allowing interest paid under section 36(1)(iii) / 37(1) of the Act. (e) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in not appreciating that section 14A of the Act is not applicable to the facts of the case. 2(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of ₹ 9,44,776/- out of interest paid as proportionate interest attributable to Capital work in progress and order of the learned Commissioner of Income Tax (Appeals) and learned Deputy Commissioner of Income Tax is based on incorrect findings and facts. (b) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in not deducting interest paid on the term loans taken for investment in shares, other old term loan and term loans taken for purchase of Motor cars while computing the disallowance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase of Motor cars while computing the disallowance. (c) The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact of the case that interest free funds utilized for purchase of capital assets. 3 That orders of Learned Commissioner of Income Tax (Appeals) and learned Deputy Commissioner of Income Tax and additions made and confirmed therein are not sustainable on various legal and factual grounds. 4. The appellant craves leave to add, alter, modify, amplify, amend and vary the above grounds of appeal. Assessee s appeal in ITA No. 899/Mum/2011 - for A.Y. 2008-08 3.3 In this appeal for A.Y. 2008-09, the assessee has raised the following grounds: - 1(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of ₹ 63,52,855/- on term loan taken from Canara Bank for investment made in acquiring 100% shares of Amroon Foods Private Limited (Subsidiary Company). (b) The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact properly about the business advantage that was derived by the appellant company from investment made in shares of Amroon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant company from investment made in shares of Amroon Foods Pvt. Ltd. and further erred in considering increase in export turnover of Amroon Foods Pvt. Ltd. in terms of time and not in terms of value. (c) The learned Commissioner of Income Tax (Appeals) erred in not treating the investment made in purchase of 100% shares of Amroon Foods Pvt. Ltd. with regard to commercial expediency. (d) The learned Commissioner of Income Tax (Appeals) erred in not allowing interest paid under section 36(1)(iii) / 37(1) of the Act. (e) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in not appreciating that section 14A of the Act is not applicable to the facts of the case. 2(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of ₹ 7,02,546/- out of interest paid as proportionate interest attributable to Capital work in progress and order of the learned Commissioner of Income Tax (Appeals) and learned Deputy Commissioner of Income Tax is based on incorrect findings and facts. (b) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) / 37(1) of the Act. (e) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in not appreciating that section 14A of the Act is not applicable to the facts of the case. 2(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest paid of ₹ 3,24,762/- out of interest paid as proportionate interest attributable to Capital work in progress and order of the learned Commissioner of Income Tax (Appeals) and learned Deputy Commissioner of Income Tax is based on incorrect findings and facts. (b) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in not deducting interest paid on the term loans taken for investment in shares, other old term loan and term loans taken for purchase of Motor cars while computing the disallowance. (c) The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact of the case that interest free funds utilized for purchase of capital assets. 3(a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ₹ 6,38,605/- under section 14A of the Act as other expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the shares of Amroon Foods Pvt. Ltd. it carried on the business more efficiently and, therefore, the entire acquisition of shares was for the purpose of business and the interest paid on the amount borrowed was wholly and exclusively for the purpose of business. We are unable to accept this contention for the simple reason that when a specific provision has been incorporated under the Act, then, the object of investment in shares cannot override the mandate of that provision. Admittedly, the dividend income was exempt under section 10(33) and, therefore, any interest expenditure incurred in connection with earning of dividend income could not be allowed in view of the provisions of section 14A of the Act. Section 14A, deals with expenditure incurred in relation to income not includible in the total income. Admittedly, dividend income is not includible in the total income. Therefore, the expenditure incurred, if any, for earning the dividend income cannot be allowed. We find that the reliance placed by the learned CIT(A) on the decision of S.G. Investments and Industries Ltd., also fortify our stand. In this case, it has been held as under: - 11. A closer look at the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g s. 57 and s. 58 of the Act, it is plain that the expenditure, not in the nature of capital expenditure and personal expenses of the assessee, laid out or expended wholly and exclusively for the purpose of making or earning the income during the relevant years are permissible deduction in computing the income chargeable under the head Income from other sources . 13. Regarding the claim for deduction of interest paid on monies borrowed for purchase of shares held as investment, we may observe that before insertion of ss. 10(33) and 115-O of the Act, the deduction for interest paid on monies borrowed for acquiring the shares held as investments could have been normally claimed under s. 57(iii) of the Act against dividend income. It cannot be claimed so now due to the explicit provisions of sub-s. (5) of s. 115-O r/w s. 14A of the Act inasmuch as such dividend income does not form part of total income chargeable to tax. To find out the answer to the question whether interest paid on borrowed monies for acquiring the shares held as investment can be construed as an expenditure laid out or expended wholly and exclusively for the purpose of making or earning dividend, we may refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. We, accordingly, hold that the interest in question in the present case cannot be part of the cost of acquisition. It is allowable against the income from the investment in question and it can be considered to be set off against the income from other sources. In the circumstances, this issue is answered saying that the said sum on account of interest is allowable as deduction under the head 'Other sources'. 14. We, Accordingly, confirm the order of the learned CIT(A) on this issue. 4.2.2 Following the aforesaid decision of the Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2005-06 in ITA No. 7285/Mum/2008 dated 25.03.2011 (supra), we uphold the impugned order of the CIT(A) for assessment years 2006-07 to 2010-11 and consequently dismiss the assessee s grounds raised at S.Nos. 1(a) to (e) for these years. 5. Grounds 2(a) to (c) for assessment years 2006-07 to 2010-11 5.1 In these grounds, the assessee, inter alia, assailed the impugned order of the learned CIT(A) for assessment years 2006-07 to 2010-11 in upholding the disallowance of proportionate interest attributable to capital work-in-progress out of the total interest paid, sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee funds for investment in capital work-in-progress and had not diverted the interest bearing funds which were wholly utilized for business purposes. On an appreciation of the records before us, the orders of the authorities below vis-a-vis the averments of the assessee, we find that except for raising the grounds (supra) and reiterating the submissions made before the authorities below, before us, the assessee has failed to controvert the findings of fact rendered by the learned CIT(A) in the impugned orders. We concur with the findings of the learned CIT(A) in the impugned orders that an examination of the financial statements for the year under consideration evidence that funds (i.e. own interest free funds and borrowed interest bearing funds for business) are mixed and the share capital and reserves which is claimed to be interest free funds is much less than the fixed assets and current assets and therefore no interest free funds were available to the assessee for being utilized in capital work-in-progress. In this factual matrix of the case, we find no reason for interference in the impugned orders of the learned CIT(A) on this issue of proportionate disallowance of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual receipt of income, which is not includible in the total income, during the relevant previous year of the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 6.3.2 In the case on hand admittedly, the factual position was that the assessee had not earned or received any exempt income in the previous years relevant to assessment years 2009-10 and 2010-11. In these circumstances, in our considered view, the ratio of the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra) would apply squarely in the case on hand. The Hon'ble High Court in the aforesaid judgement held that no disallowance under section 14A of the Act could be made in a year in which no exempt income had been earned or received by the assessee. It was held that the expression does not form part of the total income in section 14A of the Act envisages that there should be an actual receipt of income which is not includible in the total income during the relevant previous years for the purpose of disallowing any expenditure in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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