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TMI Blog2019 (7) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the present case, investments in shares of the associate concerns by the assessee is part of business strategy and therefore, interest on such loans are allowable deduction u/s.36(1)(iii) In view of the above examination of facts and legal propositions, we hold that the investments made by the assessee in M/s. Kimplas Piping Systems Ltd. were wholly and exclusively for the purpose of business and therefore, no disallowance u/s.36(1)(iii) of the Act could be made in the present case. Hence, we set aside the order of the Ld. CIT(A) on this issue and direct the AO to delete the addition - Decided in favour of assessee. Disallowance u/s 14A - non recording of satisfaction by AO on judicious and objective application of mind. HELD THAT:- We find that in the case of Godrej Boyce Manufacturing Co. Ltd. [ 2010 (8) TMI 77 - BOMBAY HIGH COURT] , it has been held that it is a mandatory requirement of the law u/s.14A that the AO has to scrutinize the claim of the assessee before making any disallowance. However, in the instant case, without looking into these facts, the disallowance was made. The Assessing Officer has not recorded satisfaction on judicious and objective applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of assessment proceedings, it was observed that the assessee had made investment of ₹ 1,75,00,000/- in equity shares of M/s. Kimplas Piping Systems Ltd. It was also observed that the investment was made out of borrowed funds from Bajaj Finance Ltd. The assessee was asked to explain why proportionate interest paid to Bajaj Finance Ltd. should not be disallowed as the borrowed funds were not utilized for the purpose of business. The assessee submitted the detailed working of interest paid on various loans borrowed. On verification it was observed that the assessee has paid interest of ₹ 2,91,267/- to Bajaj Finance Ltd. on loans which were actually utilized for the investment in the equity shares of M/s. Kimplas Piping Systems Ltd. As the assesee has not incurred expenditure of interest paid to Bajaj Finance Ltd. for the purpose of business therefore, the interest amounting to ₹ 2,91,267/- was disallowed u/s.36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as the Act‟) and added to the total income of assessee. 5. That thereafter, the matter travelled before the Ld. Commissioner of Income Tax (Appeals) and he analyzed as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his contention, the Ld. AR of the assessee has placed reliance on the following decisions: i) CIT Vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) ii) Sree Meenakshi Mills Ltd. Vs. CIT (1967) 63 ITR 207 (SC) 6.2 That further, the Ld. AR of the assessee has placed reliance on the decision of the Hon‟ble Bombay High Court in the case of CIT Vs. Reliance Communications Infrastructure Ltd. (2013) 260 CTR (Bom.) 159 wherein it has been held that no disallowance u/s.36(1)(iii) could be made in respect of investments made for strategic business purpose/investments made in group concerns or for acquiring controlling stake in certain companies for the purpose of business. 7. Per contra, the Ld. DR has placed strong reliance on the orders of the Sub-ordinate Authorities. 8. We have perused the case records, heard the rival contentions and also considered the judicial pronouncements placed before us. The undisputed facts in this case are that certain amount were borrowed from Bajaj Finance Ltd. by assessee and was invested in shares of a company which is an associate of the assessee company. The Assessing Officer as well as the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act. 10. Furthermore, what is business strategy and what is commercial expediency has to be seen from a business man‟s point of view. The Revenue cannot put itself in the armchair of a businessman to decide the same. In this respect, we have taken guidance from the following judgments: i) S.A. Builders Ltd. Vs. CIT, (2007) 288 ITR 1(SC) ii) Hero Cycles P. Ltd. Vs. CIT, (2015) 379 ITR 347 (SC) iii) DCIT Vs. EIH Ltd., (2016) 177 TTJ 25 ( Kolkata) 11. That further, in the submissions before us, the assessee has submitted that it had sufficient own funds in order to advance the same to its associate concerns. This is evident from page 9 and 14 of the paper book. We further observe that all the judgments relied on by the Ld. Commissioner of Income Tax (Appeals) in his order are not on interpretation of Section 36(1)(iii) of the Act but on the interpretation of Section 57(iii) of the Act which evidently is different in language to that used in Section 36(1)(iii) of the Act. 12. In view of the above examination of facts and legal propositions, we hold that the investments made by the assessee in M/s. Kimplas Pipin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR further submitted that in the order of the Ld. Commissioner of Income Tax(Appeal), he has accepted that no exempt income was earned. However, disallowance could be made as per Rule 8D(2) of the Income Tax Rules, 1962. The Ld. AR further submitted that when it is accepted that no exempt income has been earned by the assessee, there is no question of disallowance u/s.14A of the Act. 18. Per contra, the Ld. DR has placed strong reliance on the orders of the Sub-ordinate Authorities. 19. We have perused the case records and heard the rival contentions. We find that in the case of Godrej Boyce Manufacturing Co. Ltd. Vs. UOI reported in (2010) 328 ITR 81 (Bom.), it has been held that it is a mandatory requirement of the law u/s.14A of the Act that the Assessing Officer has to scrutinize the claim of the assessee before making any disallowance. However, in the instant case, without looking into these facts, the disallowance was made. The Assessing Officer has not recorded satisfaction on judicious and objective application of mind. In fact, the order proceeds simply on the basis of surmises and assumptions that some expenditure would have been incurred by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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