THE issue
before the Bench is - Whether when the assessee makes huge investment
for acquiring controlling stake in a loss-making company, its
expenditure warrants disallowance u/s 14A for the lack of earning
dividend income. And the verdict favours the assessee.
Facts of the case
Assessee is
a holding investment company. It had made huge investment in M/s
Ambuja Cement Ltd., to acquire the controlling interest in it by
purchasing their shares. Assessee under section 14A claimed expenditure
for the A.Y. 2008-09 and A.Y. 2007-08. The
AO noticed that the business of the assessee was not yet set up and
started, therefore, disallowed various expenses claimed in its P&L
A/c. Further AO said that the assessee had also not disclosed any
dividend income from its investment with M/s Ambuja Cements Ltd., as
appeared in the balance sheet of the company. Therefore, AO disallowed
the expenses claimed in the P&L A/c and the similar disallowance was
made for AY 2008-09. In appeal the CIT(A) held that the “entire
expenditure is not allowable in view of Section 14A of the Act. Thus,
disallowance made by the AO is confirmed though on a different ground
and as such, the appeal preferred by the appellant is dismissed” .
Similar findings were recorded by CIT(A) for A.Y. 2008-09
On
appeal before the Tribunal, the AR submitted that the CIT(A) had no
jurisdiction to enhance the income on an issue which had not been
considered by the A.O. It was further submitted that even on merits no
disallowance was warranted under section 14A as assessee had not made
any investment for earning the dividend. The assessee had made huge
investment with the approval of the appellate authority to acquire the
controlling interest in the companies of whom the assessee had
purchased shares. It was further stated that till date the assessee had
not earned any dividend by doing its business in those companies of
which the shares have been purchased by the assessee. It was further
explained that these shares were purchased for acquiring the
controlling interest of those companies. The assessee has paid no
interest as entire expenditure was made on account of salary, other
administrative expenses etc. which had no connection for earning of
dividend as all these expenses were incurred for business purposes and
as assessee had controlling interest in these companies. It was further
submitted that even for A.Y. 2007-08 Rule 8D was not applicable. DR
submitted that the CIT(A) had power to enter into the shoes of assessing
officer and therefore disallowance u/s 14A was correctly made.
In
reply it was submitted by the AR that CIT(A) had not given any finding
that assessee had not made investment for the purpose of doing
business or acquiring the controlling interest in those companies of
which shares were purchased. No body will invest such a huge amount for
just for earning of dividend. As against, assessee was doing the
business in those companies. Neither any dividend had been earned by
the assessee nor those companies had declared any dividend till date.
Therefore, this was not a case of earning the exempt income but this
was a case of doing business.
Having heard the parties, the Tribunal held that,
++
the decision in the case of Gurinder Mohan Singh Nindrajog, is
applicable on the facts of the present case where the High Court has
held that CIT(A) has no power to make the disallowance or addition
where assessing officer has not applied his mind. If any disallowance
escaped the attention of the assessing officer, then remedial action
can be taken either by issuing notice u/s 148 or initiating proceedings
u/s 263 of the Act. In the present case AO has not made any
disallowance u/s 14A, as he disallowed the entire expenditure by holding
that business of the company has not set up. The CIT(A) has accepted
the ground of the assessee that business was set up and expenditure
claimed in the P&L A/c cannot be disallowed. However, he disallowed
the entire expenditure u/s 14A which was not disallowed by the
assessing officer. Therefore, respectfully following the decision of
the High Court the tribunal holds that CIT(A) has assumed jurisdiction
wrongly for making disallowance u/s 14A of the Act;
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in the facts of the present case the investment was purely of business
nature as the company in which the amount was invested was a loss
making company and there was no question of earning any dividend income
from such investment. In the totality of the facts and circumstances
of the case we find no merit in the order of the authorities below in
disallowing any expenditure under the garb of section 14A of the Act;
++
assessee has invested in the companies which were not showing profits.
The assessee acquired controlling interest in those companies just to
run these companies properly. AR submitted that till date no dividend
has been earned by the assessee as assessee is doing the business in
these companies from the amounts invested through shares;
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the assessee case is not a case of disallowance under section 14A.
Therefore, the disallowance made under section 14A for both the years
were deleted.
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