Case Law Details
Fact of the Case
In the balance sheet of the assessee, A.O. noted that there was a term loan of Rs.7,58,09,730/- from Axis Bank. Further the assessee has invested in fully paid equity shares of Pollen Dealcom Pvt. Ltd. amounting to Rs.6 crores. Beside there were other investment also which consists of fully paid equity shares of Sun Rise Tie-up Pvt. Ltd. amounting to Rs.90,225/- and Reliance Medium Term Fund-Daily Dividend Plan amounting to Rs.1,25,24,400/-.
The assessee has shown dividend income of Rs.2,26,517/- under the head “other income”. The auditor had shown in the tax audit report amounting to Rs.23,094/- as inadmissible under section 14A. A.O. during the assessment proceedings disallowed a sum of Rs.34,74,755/- out of total sum of Rs.43,54,906/- debited in the profit & loss account on account of interest on term loan by invoking provision of Section 14A of the Income Tax Act in respect of entire investment.
Contention of the Assessee
The assessee explained that the loan taken from Axis Bank was utilized for the purpose of giving a deposit of Rs.6 crores to M/s. Pollen Dealcom Pvt. Ltd. for generating business of the assessee and therefore, the interest paid on such loan was business expenditure and, therefore, no disallowance under section 14A other than what has already been made in the return of income. The shares of Pollen Dealcom Pvt. Ltd. were received as security for the interest free security deposit given to Pollen Dealcom Pvt. Ltd with specific condition that no dividend would ever be declared on such shares and that the assessee could never sell those shares to any third party.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
