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TMI Blog2020 (10) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and examine the accounts of the assessee and was required to record his findings / reasoning that he is not satisfied with the plea / submissions of the assessee. However, no such exercise has been done by the AO in this case. It is to be noted that out of the total dividend income of ₹ 7,45,55,286/-, an amount of ₹ 7,45,49,286/- has been earned by the assessee from old investments in wholly owned subsidiary company M/s Saraswati Sugar Mills Ltd. The remaining of only ₹ 6,000/- has been earned from other company M/s Reliance Industries Ltd. However, the fact is also on the file that the assessee has maintained / managed not only old strategic investments for business purpose in wholly owned subsidiary / sister concern but also made old investments in other companies. Considering the submissions of the assessee that not much effort has been made by the assessee to manage the old investments and further considering that the major chunk of the dividend amount was earned from strategic investments made in the subsidiaries, in our view, a lump sum disallowance of ₹ 5 lacs will be reasonable on account of administrative expenses incurred for man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Agriculture Income of ₹ 8,20,937/-. The assessee did not make suo motu disallowance of expenditure in respect of the aforesaid tax exempt income earned by the assessee. When called upon by the Assessing Officer, as to why the disallowance u/s 14A of the Act read with Rule 8D are not made in view of the investment made by the assessee, in response, the assessee filed the following submissions:- 1.00 Details of exempt income: With regard to Dividend Income of ₹ 7,45,55,286/we submit that no expenditure has been incurred in relation to this dividend income, which does not form part of the total income, as the dividend is from wholly owned subsidiary company and Dividend is transferred in the account of the assessee. As far as agricultural income of ₹ 8,20,937/- is concerned, a separate Profit Loss Account from the farm operations has been enclosed as Note No. 21.1 to Statement of Profit Loss. You will note that against Farm income of ₹ 12,86,800/- there is an expenditure of ₹ 4,65,864/- and the income claimed to be exempted is only ₹ 8,20,937/-, The cost of the farm land is ₹ 1,47,908/-, which was bought several year b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no exempt income from this investment. As decided by the Hon'ble Punjab Haryana High Court in C1T Vs. Lakhani Marketing, if there is not tax free income there will be no disallowance, copy of judgment enclosed as Annexure-V. 2.05 Investment in Isgec Hitachi Zosen Limited-₹ 51,00,00,000/- During the year a joint venture agreement was entered into between the company and Hitachi Zosen Corporation, Japan. In pursuant to that a joint venture company namely Isgec Hitachi Zosen Ltd. was formed and the assessee-company has contributed investment of ₹ 51,00,00,000/- as share capital of this joint venture company. The said investment is out of Company's own surplus funds and retained earnings. Further it is strategic investment to enter into joint venture business and joint investment and therefore as decided in case of JM Financial Limited Vs ACIT no disallowance under section 14A can he made. We further submit that purpose of this investment is to get support from Hitachi Zosen Corporation, Japan for business of the company. The company received lots of order because of this business support. 2.06 The total investment made in cash in these comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 14A out of interest expenditure can be made. v) From the aforesaid submission you will appreciate that all the investments have been made out of own funds and hence there is no expenditure attributable to these investments and there is no cause of disallowance of any deduction on account of expenditure, incurred in relation to income which does not form part of the total income. 3. The assessee further submitted that even there is no positive net interest income of the assessee. It was further submitted that since the assessee was possessed of sufficient own funds, no disallowance of interest expenditure under Rule 8D(2) was attracted. 4. The Ld. Assessing Officer considering the above submissions of the assessee that the investments were old investments and there was no direct nexus between the borrowed funds and investments made in the past, did not make any disallowance of interest expenditure under Rule 8D(2)(ii) of the Income Tax Rules. However, he held that even in case of old investments, disallowance of expenditure under Rule 8D(2)(iii) read with section 14A was attracted to cover the administrative and other misc. expenses incurred for managin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of tax exempt income. The Assessing Officer in this respect has applied Rule 8D(2)(iii) directly without considering the submissions of the assessee that the assessee has not incurred any expenditure in this respect and that all the investment were strategic investments for business purposes of the assessee. As per the provisions of section 14A of the I.T. Act, before proceeding to calculate disallowance under Rule 8D(2)(iii), the Assessing Officer was supposed to consider the submissions of the assessee and examine the accounts of the assessee and was required to record his findings / reasoning that he is not satisfied with the plea / submissions of the assessee. However, no such exercise has been done by the Assessing Officer in this case. It is to be noted that out of the total dividend income of ₹ 7,45,55,286/-, an amount of ₹ 7,45,49,286/- has been earned by the assessee from old investments in wholly owned subsidiary company M/s Saraswati Sugar Mills Ltd. The remaining of only ₹ 6,000/- has been earned from other company M/s Reliance Industries Ltd. However, the fact is also on the file that the assessee has maintained / managed not only old strategic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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