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TMI Blog2016 (4) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 25.08.2009 by ignoring [sec. 14A(3) of I.T. Act, 1961] and that sec. 14A r.w. Rule 8D is applicable for Assessment year under consideration. 2. That the Ld CIT(A) erred in deleting the disallowance of Rs. 1,87,19,975/- u/s 14A r.w. Rule 8D relying on the decision of Hon'ble Punjab and Haryana High Court in the case CIT Vs. Winsome Textile Industries Ltd in I.T.A. No. 504 of,2008 dated 25-08-2009 by ignoring fact that the assessee has not given proof that entire investment has been made out of its operating profits and thus, ignonng the decision of Apex Court in the case of Godrej and Boyce Manufacturing Company Ltd., 328 ITR 81 Walfort Share and Stock Brokers Pvt. Ltd 326 ITR 1 wherein it has been held that it is for Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income and the AO would have to arrive at his determination after furnishing an opportunity to the assessee to place on the record all relevant material in support of the circumstance." 4. Briefly, the facts of the case are that the Assessing Officer during the course of assessment proceedings noted that the assessee had made investments amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (Appeals) allowed the ground raised by the assessee. 6. Aggrieved by this, the Department has come up in appeal before us. The learned D.R. while arguing before us, stated that as per sect ion 14A(3) of the Act,, the provisions of sect ion 14A applies also in relation to a case where an assessee claims that no expenditure has been incur red by him in relation to exempt income. As per Rule 8D(2), the interest which is not directly attributable to any particular income or receipt, is to be disallowed as per the formula prescribed in Rule 8D(2) (ii). As per Rule 8D, the Assessing Officer is to compute the disallowance even where the assessee claims that no expenditure has been incur red or the Assessing Officer is not satisfied with the correctness of claim of expenditure made by the assessee. A heavy reliance was placed on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Walfort Share & Stock Pvt. Ltd. (2010) 326 ITR 1 (SC), whereby it was held that the expenses allowed can only be in respect of earning of taxable income. This is the purport of sect ion 14A of the Act. it was argued that in view of this judgment, it is very clear that the expenses incur red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Jurisdictional High Court in the case of Kapsons Associates Investment P. Ltd. (supra), we can safely infer that the investments have been made out of owned funds and not from borrowed funds. This proposition has also been laid down by the jurisdiction High Court in another case of Bright Enterprises P. Ltd. Vs. CIT in ITA No.224 of 2013 (O&M) dated 24.7.2015 in the following terms: "16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment." 9. In view of the above, no disallowance under sect ion 14A of the Act with respect to interest expenditure can be made. As regards the administrative expenditure, we are in agreement with the submissions of the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting addition of Rs. 4,47,46,076/- on account of disallowance of interest u/s 36(l)(iii) on investment in shares ignoring the fact that the shares were actually allocated much later and the money was not actually used by assessee for business purpose." 12. The facts of the case are that the assessee had made investments in the share capital of the following cases for the relevant assessment year: i) Oswal Retail Pvt. Ltd. Rs. 37,54,63,686/- ii) Oswal FM Hammerle Textiles Ltd. Rs. 12,17,14,936/- 13. The Assessing Officer after considering the explanation of the assessee that the investments had been for the purpose of business, rejected the same on the ground that making the investment in subsidiary companies was not the business of the assessee. The Assessing Officer placed reliance on the judgments of CIT Vs. Amritaben R. Shah, 278 ITR 777 (Bom) and Sarabhai Sons (P) Ltd. Vs. CIT, 201 ITR 465 (Guj). Thereafter, reliance on the judgment of Punjab & Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd., 286 ITR 1 was placed. He held that the investments in share capital of two subsidiary companies could be treated as from borrowed funds and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness, as observed by the Apex Court in the case of S.A. Builders (supra). Since the investments are clearly intended to expand the business of the assessee in the line of garments product ion and retail thereof, cannot be treated as non-business purpose. The mere fact that there has been some delay in allotment of shares, does not mean that funds lying in the subsidiary company can be treated as not commercially expedient. In this way, the learned CIT (Appeals) deleted the addition made by the Assessing Officer. 16. Aggrieved by this, the Department has come up in appeal before us. The learned D.R. relied on the order of the Assessing Officer and further submitted that the funds were given to the subsidiary companies on which interest expenditure has been incur red. The subsidiary companies might have used the same for its own business purposes, which cannot be said to be the business expediency. Therefore, the disallowance under sect ion 36(1) (iii) of the Act is as per law. 17. The learned counsel for the assessee brought to our notice that owned funds of the company are to the tune of Rs. 167,15,49,000/- while the investments in the share application money of subsidiary comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pares" whereas before AO the assessee claimed these to be for "machinery" and hence filed different facts before Ld. CIT(A). 5. That the order of the Ld CIT(A) erred in deleting addition of Rs. 3,386/- on account of capitalization of capital advance to Surjit Singh & Sons by holding that these were from internal resources of the company whereas no such claim was made before A.O." 20. The facts of the case are that the assessee made following capital advances, interest pertaining to the same which are not capitalized: i) Rana Oi l Mill Yeotmal Rs. 50,00,000/- ii) Fongs National Engg. Co.Ltd. Rs. 7,88,074/- iii) Sur j it Singh & Sons Rs. 50,000/- Rs. 58,33,074/- 21. The Assessing Officer disallowed the interest on capital advance, applying rate of 9% for disallowing the same. 22. Before the learned CI T (Appeals), it was stated that Rs. 50 lacs to Rana Oil Mills were given in anearlier assessment year i.e. 2005-06 for purchase of DG sets. Due to some technical fault, generator was not accepted by the assessee company and advance went in dispute and still not written off in the books of account. This advance was made out of cash generated from operations in assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for setting up of water tank, even though in the nature of capital asset does not call for any disallowance as company has sufficient internal resources free of interest to permit it to make such an investment. As such the disallowance made by the AO with reference to above mentioned two advances is directed to be deleted." 25. On perusal of the same, we do not find any infirmity in the order of the learned CIT (Appeals) since he has been fair enough to confirm the disallowance made by the Assessing Officer on account of interest of advance meant for purchase of generator, which is a capital asset to be acquired. However, with regard to two other advances, no capital asset is expected to come into existence. Therefore, the interest on these advances cannot be disallowed by the Assessing Officer. The grounds of appeal raised by the Revenue are dismissed. 26. The ground No.6 raised by the Department reads as under: "6. That the order of the Ld CIT(A) erred in directing A.O. to pass a speaking order on the issue of adjudication on reduction of provision of Wealth Tax from the statement of taxable income prepared u/s 115JB when the Ld. CIT(A) has no powers u/s 251(1)(a) to reman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, was Ld. CIT(A) justified in deleting the addition amounting to Rs. 30,14,856 made u/s 14A of Income Tax Act, 1961 read with rule 8D?" 33. it is relevant to observe here that the issue in ground No.1 is similar to the issue in ground Nos. 1 and 2 raised by the Revenue in ITA No.372/Chd/2015 and the findings given in ITA No.372/Chd/2015 shall apply to this case also with equal force. 34. The ground No.2 raised by the Revenue reads as under: "ii) "Whether in the law and circumstances of the case, was Ld. CIT(A) justified in deleting the addition made on account of disallowance of interest amounting Rs. 5,37,01,562/- made u/s 36(l)(iii) of Income Tax Act, 1961?" 35. The facts in ground No.2 are similar to the facts in ground No. 3 raised by the Revenue in ITA No.372/Chd/2015 and the findings given in ITA No.372/Chd/2015 shall apply to this case mutatis mutandis. 36. The ground Nos. 3 and 4 are general in nature, hence need no adjudication. 37. The appeal of the Revenue is dismissed. ITA No.397/Chd/2015: 38. The ground No.1 raised by the Revenue reads as under: "i) "Whether in the law and circumstances of the case, was Ld. CIT(A) justified in deleting the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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