TaxTMI 
TaxTMI 
2013 (8) TMI 366
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....ous and contrary to the facts and law. (2) On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (A) has erred in deleting the disallowance of interest paid on loan amounting to Rs. 45,38,908/-. (3) On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (A) has erred in restricting the disallowance under section 14A to Rs. 20000/- despite the fact that disallowance was made in accordance with Rule 8D of the I.T. Rules, 1962 applicable for the year under consideration. (4) The appellant craves leave to add, alter, or amend any grounds of the appeal raised above at the time of the hearing. 5. Apropos issue of deletion of disallowance of interest paid. In this case as per the assessment order, the Assessing Officer made an addition of Rs. 45,38,908/- as proportionate disallowance of interest. It is observed that the assessee had claimed interest expenses of Rs. 5.73 crores as per the profit and loss account for the year under consideration. The total loans and advances were shown at Rs. 32.11 crores in the balance sheet as on 31.3.2008, the details of which were furnished to the Assessing Officer. Out of the....
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....epartmental Representative could not contradict this submission of the assessee. 9. Upon careful consideration we find that the Ld. Commissioner of Income Tax (A) in his appellate order has found that facts of the case were similar to the preceding year in which he had decided the issue in favour of the assessee. That decision of the Ld. Commissioner of Income Tax (A) was upheld by the Tribunal in I.T.A. No. 3938/Del/2011 and 3939/Del/2011 vide order dated 29.8.2012. In this case the Tribunal has held as under:- "8. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record and the orders of the authorities below we hold as follows:- 9. The loans in question, on which interest has been paid by the assessee and part of which is sought to be disallowed by the Assessing Officer is given below:- Nature of loan Amount-Rs. Amount-Rs. 1) Working Capital Loans: - PNB a/c 7,10,58,400/- - Centurion & 14,37,51,079/- Lord Krishna bank 3,12,19,849/- 24,60,29,328/- - GE Capital 2) Term Loans: &nb....
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....rial if a third party also benefits thereby. 25. In our opinion, the High Court as well as the Tribunal and other income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. 26. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 31. The High Court and the other authorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. 32. It is true that the borro....
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....are not for business purposes. The A.O. has no material to disbelieve the claim of the assessee. Hence the assessee should succeed. 13. Even otherwise the interest free funds available with the assessee are Rs. 44.28 crores. The assessee has earned profit of Rs. 5.93 crores during the Assessment Year 2007-08. If depreciation of Rs. 2.88 crores is added, the cash accruals during the year would be Rs. 8.81 crores. The interest free advances are to the tune of Rs. 14.89 crores. The Hon'ble Bombay High Court in the case of CIT vs. Reliance Utility and Power Ltd. 178 Taxman 135 Bombay held that in such situations the presumption would be that interest free funds were used for the purpose of giving interest free advances. The A.O. has not dislodged this presumption. Hence on this ground also, the issue is to be decided in favour of the assessee. 14. The Commissioner of Income Tax (Appeals) has also called for the remand report from the Assessing Officer on the details filed before him and hence the argument that the Assessing Officer has not been given an opportunity is against the facts of the case. Admission of additional evidence has not been challenged by Revenue. 15.....
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....s in mutual funds aggregating to Rs. 82 lacs as on 31.3.08. The assessee has sufficient interest free funds and hence no inference could be drawn that these investments were made out of borrowed funds. Only the actual expenditure incurred by the assessee in earning the dividend income should be deducted from the dividend income and not the notional expenditure." 14. It was further submitted that in any case the disallowance cannot exceed the amount of investment itself, which in the case of assessee was Rs. 20,000/- to earn the exempt income. It was further submitted that disallowance on this issue was restricted to Rs. 41,600/- equivalent to the amount of investment in equity shares in the appeal of the assessee for A.Y. 2007-08. In this view of the matter, it was argued that disallowance for the year under appeal i.e. A.Y. 2008-09 may be reduced to Rs. 20,000/-. Ld. Commissioner of Income Tax (A) held as under:- "I have considered the submissions of the appellant, the findings of the Assessing Officer and the facts on record. It is seen from the above that the basis of addition adopted by the Assessing Officer as well as the arguments of the Ld. Authorised Representative....