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TMI Blog2019 (9) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... alia that :- "On the facts and circumstances of the case, whether the CIT (A)-15 has erred in restricting the disallowance from Rs. 2,69,64,423/- to Rs. 25,28,619/-." 2. Briefly stated the facts necessary for adjudication of the issue at hand are : Assessing Officer (AO) noticed that the assessee company has earned dividend income of Rs. 76,75,881/- from its equity investments in M/s. Gillette India Ltd.. AO further noticed that the assessee company is actually doing the work of establishing Gillette business in India. AO proceeded to hold that though the assessee may be in the business of making investment but since investments are resulting only in dividend income and not in any business income, the expenditure for making such investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 5. Undisputedly, while making disallowance u/s 14A, AO has taken the figure of total ICDs of assessee on which the assessee has earned interest income of Rs. 126.14 crores and the total investment/ share application money during the year under assessment is Rs. 258.26 crores giving a ratio of 1 : 2.04 and thereafter identified the allowable expenses as per profit & loss account amounting to Rs. 4.02 crores as detailed in the preceding para and apportioned the same in the ratio of 1 : 2.04 and made disallowance of Rs. 2,69,64,423/-. It is also not in dispute that during AY 2001-02, similar disallowance by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax free income as the assessee was having sufficient surplus funds and supported the impugned order passed by the ld. CIT (A). 8. When we examine the impugned order passed by the ld. CIT (A) it shows that by adopting the formula for making disallowance u/s 14A, the ld. CIT (A) has followed the decision rendered by the tribunal in AY 2005-06 in assessee's group cases by returning following findings :- "7.2. On considering the facts of the case as well as the submissions made by the appellant, it is observed that the issue of disallowance u/s 14A of the Act has already been dealt in the case of appellant's sister concern namely, M/s Gillette Diversified Operations Pvt. Ltd., for A Y 2005-06 by the appellate authorities. The Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses do not appear to have any relation with earning of dividend income. However, the AO has worked out disallowance after considering all these expenses which is against the provisions contained in section 14A. Regarding interest expenses of Rs. 22,65,719, the appellant has simply contended that investment were made out of interest free funds and therefore this interest component can not be considered for working out disallowance. The appellant has however not substantiated its argument by furnishing any evidence to that effect. Admittedly the appellant is not in business of making investments and therefore if it were having any surplus funds, then it would have utilized it in more prudent way to reduce its interest liability instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses in proportion of the dividend income vis-a-vis the gross income of the appellant. In such exercise excluding those expenses which have no bearing in the mixed activities (earning taxable as well as non-taxable income) have been rightly excluded. Similar reasonable view has been accepted in the case of appellant's sister concern M/s Gillette Diversified Operations Pvt. Ltd. in A Y 2005-06 by Ld. CIT(A)- XXIX, Delhi. In view of the above, the disallowance u/s 14A of the Act is restricted at Rs. 25,28,619/-. The appellant gets the consequential relief. The ground of appeal is, thus, partly allowed." 9. Even otherwise, no fresh investment has been made by the assessee company during the year under assessment. When the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual findings returned by the ld. CIT (A) in para 7.1, the assessee company has earned dividend income from its equity investment in Gillette Group India Pvt. Ltd., that too from the old investment and no investment has been made during the year under assessment as is evident form audited balance sheet, available at file as Annexure III, and as such restricted the disallowance from Rs. 2,69,64,423/- to Rs. 25,28,619/- by adopting the formula which has already been upheld by the coordinate Bench of the Tribunal in assessee's group concern cases for AY 2005-06. Even otherwise, it is settled principle of law that only actual expenditure having direct or indirect nexus for earning the exempt income can be disallowed u/s 14A of the Act. So, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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