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TMI Blog2014 (10) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... shed by the Assessing Officer to substantiate that the assessee incurred any expenditure to earn dividend income. On the contrary, the Ld. CIT(A) has given categorical finding that the Assessing Officer had not proved that the borrowed funds were invested in the shares or brought the valid satisfaction supported by the cogent reasons to determine the expenses under Rule 8D. The said categorical finding given by the Ld. CIT(A) has not been rebutted. Therefore, we do not see any valid reason to interfere with the findings of the Ld. CIT(A). - Decided in favour of assessee - ITA No. 501 & 502/Jodh/2013 - - - Dated:- 9-10-2014 - SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. Assessee by : Shri Amit Kothari. Department By : Shri Mahesh Kumar - D.R. O R D E R PER N.K. SAINI, A.M These two appeals by the department are directed against the separate orders each dated 08/08/2013 of Ld. CIT(A), Udaipur. Since the issue involved is common having identical facts and the appeals were heard together, so these are being disposed off by this consolidated order for the sake of convenience.2 2 First we will deal with I.T.A. No. 501/Jodh/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received in respect of dividend were payable at par and therefore, no expenses were incurred in realizing the said income. It was also stated that the assessee did not incur any expenditure for earning the dividend income and had also not invoked sub-section (2) of section 14A of the Act r.w.r. 8D to estimate the expenses incurred in regard to the dividend income. The Assessing Officer, however, did not accept the submissions of the assessee and observed that the assessee debited expenses of ₹ 1,36,90,516/-, financial charges of ₹ 13,03,755/- and also made investment in the shares of M/s. Associate minerals, Udaipur amounting to ₹ 87,07,884/- and in shares of M/s. Fimakem India Ltd., Udaipur for ₹ 2,62,30,400/-. He also observed that the unsecured loans increased from ₹ 6,62,09,550/- as on 01/04/2008 to ₹ 17,16,21,886/- as on 31/03/2009 and similarly there was increase in the interest expenses from ₹ 36,12,850/- in the A.Y. 2008-09 to ₹ 1,36,90,516/- in the A.Y. 2009-10. The Assessing Officer opined that the interest expenses were attributable to the investment in shares made by the assessee on which the assessee had received dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was at ₹ 13,41,32,097/- as on 31/03/2009 against shareholders funds of ₹ 56,36,54,029/-. Thus, the investments were adequately backed by the shareholders funds which were interest free. It was further stated that the Assessing Officer had failed to prove any nexus between the borrowed funds and the investments and that no borrowings were undertaken to make the investments and consequently, no interest expenditure or other expenditure was incurred to earn the dividend income, therefore, disallowance was not justified. Reliance was placed on the following case laws:- 1) Reliance Utilities Power Ltd. (2009) 313 ITR 340 (Bom.) 2) CIT Vs. Catholic Syrian Bank Ltd. (MANU/KE/2174/2010) (Ker.) 3) CIT Vs. Hero Cycles (2010) 323 ITR 518 (P H) 4) CIT Vs. Gujarat Power Corp. (Guj.) MANU/GJ/0333/2011 (Appeal No. 1587 of 2009 decided on 28/03/2011) 5) CIT Vs. M/s. Lubi Submersibles Ltd. (2011) (Guj.) Appeal No. 868 of 2010 decided on 25/07/2011. 6) CIT Vs. K. Raheja Corporation Pvt. Ltd. (Bom.) MANU/MH/1020/2011. 7) ACIT Vs. Punjab State Coop. Mktg. ITA No. 548/Chd/2011 (ITAT Chandigarh) dt. 30/09/2011 MANU/IG/0115/2011. 8) DCIT Vs. Maharashtra Seam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x was not refundable or adjustable against any other liability of tax on income, then tax had been finally collected and the related income had suffered tax under the Act then it was not an exempt income as was the case with the dividend income for which the tax was paid by the shareholders and the additional tax was payable by the companies u/s. 115O of the Act on the distribution made, all dividends taxable and tax collected from companies was the finally collected tax by Income Tax Authorities. So, it was wrong to say that dividend referred to in section 115O of the Act was not part of the taxable income. It was contended that from the provisions of section 115O of the Act it was clear that the taxes paid by the company was an additional income tax collected from the person, who distributes dividend. Therefore, in the overall context of the Act, dividend as well as long term capital gains which were exempt u/s. 10 of the Act were already taxed in some other manner and the tax imposed as Dividend Distribution Tax (DDT) is income tax levied and collected in an easy and convenient way. A reference was made to the CBDT circular No. 763 dated 18/02/1998 and it was stated that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of total income and therefore, such income was outside the ambit of section 14A of the Act. It was further stated that when the shares were not purchased by the assessee merely to earn dividend, rather, the objective of earning dividend though implicit came much later in priority. It was also stated that the shares were purchased mainly to gain controlling stake and also to earn gains by way of appreciation and dividend was merely incidental, therefore, the provisions of section 14A of the Act were not applicable in respect of dividend income received by the assessee and the disallowance u/s. 14A of the Act was not justified. It was contended that the assessee company had been carried out its various business either on its own or through its subsidiaries and all the investments made by the assessee in its subsidiaries had been for the purpose of business in commercial expediency and were not for the purpose of earning dividend. Therefore, any expenditure incurred for the purpose of making investment in subsidiary companies was business expenditure and allowable u/s. 36 or 37 of the Act, as the case may be. Reliance was placed on the following case laws:- 1) CIT Vs. Phil Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. Reliance was placed on the following case laws:- 1) CIT Vs. Reliance Utilities Power Ltd. 313 ITR 340 (Bom.) 2) CIT Vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P H) The Ld. CIT(A) also referred the decision of ITAT Chandigarh Bench in the case of ACIT Vs. Punjab State Coop Marketing in I.T.A.No. 548/Chd/2011 wherein it has been held that where the investment was made in earlier years out of reserve surplus funds, provisions of section 14A could not be applied. 10. Ld. CIT(A) categorically stated that the Assessing Officer had not proved that the borrowed funds were invested in shares and other expenses were incurred by the assessee and that the assessee had clearly stated that there was no expenditure incurred on the investment in shares as assessee had not used any borrowing for earning the said exempted income and the dividend cheques/DDs were payable at par. According to the Ld. CIT(A), the onus was on the Assessing Officer to show cogent reasons before rejecting the explanation of the assessee that no expenditure was incurred. Reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. Ors Vs. CIT 247 CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14A of the Act, it is required that there must be definite nexus between the expenditure incurred for earning the exempted income. However, in the present case, the assessee was having adequate interest free funds in the form of shareholders funds and reserved surplus to back up the investment in shares, the funds available were of ₹ 56,36,54,029/- against the investment of ₹ 13,41,32,097/-. In the instant case, the Assessing Officer did not bring any cogent material on record to substantiate that the assessee incurred any expenditure to earn the exempted income. On the contrary, the explanation of the assessee was that all the DDs/cheques for the dividend received were payable at par and no other expenditure was incurred, the said explanation was not rebutted. 14 On the similar issue, the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (supra) has held as under:- that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest free fund ..... X X X X Extracts X X X X X X X X Extracts X X X X
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