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TMI Blog2017 (1) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... ht of CBDT Circular dated 2nd November, 2016, the present appeal by the Department is liable to be dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... see carried the issue in appeal before the Tribunal. The Co-ordinate Bench of the Tribunal decided the issue in favour of the assessee. The relevant extract of the order of Tribunal is as under : "8. In ground No. 2 raised in the grounds of appeal, the assessee has assailed disallowance u/s. 14A. The assessee is a holding company of M/s. Hari Infrastructure (P) Ltd. The assessee has advanced borrowed money to the said subsidiary company for repayment of loan. It has been contended that the borrowed money has been advanced to the subsidiary on account of commercial expediency. Further, the assessee has made investment in two subsidiary companies i.e. M/s. Nagar Kopergaon Infrastructure Pvt. Ltd. (hereinafter referred to as "NKIPL") ₹ 26.50 crores and M/s. Pranjal Infrastructure Pvt. Ltd. (hereinafter referred to as "PIPL") of ₹ 3.02 crores. The assessee has formed these two new companies as Special Vehicle Purpose (SPV) to accomplish the projects allotted by Public Works Department (PWD), Government of Maharashtra. The said projects were purportedly allotted to the assessee on the condition that each project should be carried out by separate SPV of the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of interest should be made u/s.36(1)(iii) or u/s.14A. We find the Ld.CIT(A) rejecting the various submissions made before him and distinguishing the various decisions cited before him rejected the claim of the assessee that no disallowance is called for u/s.14A of the I.T. Act. 18. It is the submission of the Ld. Counsel for the assessee that since the investments are made in shares of the holding company who in turn has invested the amount in the subsidiary company and special purpose vehicle companies, for getting contracts from the PWD department of Government of Maharashtra, therefore, the investment was for commercial expediency and therefore no disallowance of interest is called for. It is also the alternate contention of the Ld. Counsel for the assessee that since no dividend income has been received which is exempt from tax, therefore, no disallowance u/s.14A should be made. It is also another alternate contention of the Ld. Counsel for the assessee that since the entire income of the assessee is eligible for deduction u/s.80IA(4), therefore, even if any disallowance is made the business income of the assessee will go up and therefore there will be corresponding deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the investments made by the appellant in the PSVs can be disallowed u/s. 14A r.w. Rule 80 because it cannot be termed as expense/ interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum ₹ 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals), hence we uphold the same. On going through the above observations we are of the view that this is merely a question of fact and does not involve any question of law much less a substantial question of law, as the Tribunal held that the expenses which have been claimed by the assessee were not towards the exempted income. The disallowance, therefore, was rightly limited to a sum of ₹ 40,556/-. The question of interpreting Rule 8-D is not in dispute and the only dispute is with regard to facts which have been settled by the Tribunal. The appeal is dismissed." 19. We also find merit in the alternate contention of the Ld. Counsel for the assessee that since assessee is entitled to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eloping a housing project was not allowable on account of nondeduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40 (a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: • Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court. • Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11,2015, Bombay High Court. (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: • Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and All ..... X X X X Extracts X X X X X X X X Extracts X X X X
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