TaxTMI 
TaxTMI 
2013 (11) TMI 565
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.... concerns without appreciating that the amounts were given in the normal course of business activities and ion account of commercial expediency. 3. The learned CIT(Appeals) failed to appreciate that the appellant had sufficient interest free funds to make interest free advances to sister concerns. 4. The learned Commissioner of Income Tax (Appeals) erred in holding that there is direct nexus between the interest bearing funds taken and interest free advances given. 5. In the alternative and without prejudice to the above the learned CIT(Appeals) erred in not considering the sum of Rs.28,54,283/- being interest received while making the disallowance. 3. The issue in the above five grounds is with reference to the disallowance of interest. Initially when Assessing Officer completed the assessment he had not invoked the provisions of section 36(1)(iii), but invoked provisions of section 14A to make a disallowance of Rs.49,14,969/-. While accepting the assessee's contentions that provisions of section 14A and Rule 8D are not applicable in the impugned assessment year, the Ld. CIT(A) however examined the payment of interest by the assessee and ....
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.... the nature of interest paid. To the extent of interest paid on unsecured loans at Rs.28,53,996/-, it was the submission that amount of Rs. 26 lacs was paid to M/s C.U. Shah at 13% per annum and the funds are used for the purpose of business. However, as seen from the record and also as per the findings of the CIT(A), the entire amount of 2 crores borrowed from Mr. C.U.Shah was transferred to a group of Company M/s Bakliwal Financial Services Pvt. Ltd. 7. Even though it was contented that the advance was given for the business purpose, we are of the opinion that this aspect was not established, therefore disallowance of interest at 13% i.e. Rs.26 Lacs on the amount paid to Mr. C U Shah has to be disallowed under section 36(1)(iii). To that extent the disallowance made by the CIT(A) gets sustained and assessee's ground on that gets rejected. 8. Then with reference to the balance of unsecured loan of Rs.2,53,996/- and the Bank interest paid on Rs.46,84,997/-, the presumption raised by the assessee that these are for the purpose of business has to be accepted. There are interest free funds available to the assessee to an extent of Rs.41.84 Crores and interest free advances were to t....
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....contentions, we do not see any reason to interfere with the order of the CIT(A). The CIT(A) order is very reasonable in restricting the disallowance to 5% of the dividend earned. In fact in number of cases the disallowance was also made 2% of the exempt income. Since assessee has not challenged the disallowance, We are of the opinion that the disallowance sustained by the CIT(A) is reasonable. As already held by the Hon'ble jurisdictional High Court invoking the provisions of Rule 8D does not arise for the impugned assessment year. Therefore, we reject the grounds raised by the Revenue on this issue. 12. In the result the Revenue appeal is dismissed. ITA No.2991/Mum/2012 - AY 2008-09 13. In this assessment year there are disallowance on various other issues also apart from disallowance under sec. 14A and section 36(1)(iii). We have heard the Learned Counsel and the Ld. DR and the appeals are decided as under. 14. This is an Assessee's appeal in which assessee has raised the followings grounds. 1. The Commissioner (Appeals)erred in confirming the addition and treating the shares received in the process of demutualization as an independent capital asset and in holdi....
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....tten down value (WDV) of the membership card was Rs.34,84,775/- during the year. The assessee sold shares of Rs. 2,737/- to BSE under a Buyback Scheme for a sum of Rs.14,23,24,000/-. These shares were actually acquired by the assessee in financial year 2005-06 relating to AY 2006-07 in accordance with the scheme of demutualization or corporatization of the BSE as proved by the SEBI. out of the 10,000 shares allotted, the assessee sold part of that(2737) during the year. The Assessing Officer revalued the cost of shares and worked out the long term capital gain as against the business profit shown by the Assessee. Before the CIT(A), the assessee contented that the income cannot be taxed as capital gains and the cost of the share also was wrongly considered by the Assessing Officer. The Ld. CIT(A) held that sale of share is a capital asset the cost under section 55(2)(ab) has to be determined at the cost of original BSE membership card value and accordingly, he upheld the AO's action to the extent of taxing the gain under the head 'capital gains' while allowing the cost of acquisition as per the provisions of the Act. The Revenue has accepted the order of the CIT(A) whereas assessee ....
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.... invoking Rule 8D does not arise as there was no satisfaction recorded by the AO under section 14A(2). More over, the assessee stock in trade cannot be considered as investment for disallowance under Rule 8D following the Principles laid down by the Hon'ble Karnataka High Court in the case of CCI Ltd. (supra). Stock in Trade cannot be considered as investment for the purpose of working out disallowance at half percent also under Rule 8D(iii). There is only an investment of Rs.10,500/- as per the balance sheet which can only be considered for this purpose. Therefore, since the dividend earned is incidental to the business activity of the assessee, we restrict the disallowance to 5% on the amount earned as dividend under section 14A which should meet the ends of justice on the facts of the case. AO is directed to work out the disallowance under section 14A. Ground No. 4 to 8 18. The issue in these grounds is similar to the issue in AY 2007- 08 for disallowance on interest under section 36(1)(iii). The Assessing Officer disallowed an amount of Rs.24,66,151/- at 20% of the total interest expenses u/s 36 (1)(iii). The Ld. CIT(A) enhanced by sum of Rs.1,52,30,053/- The Assessee submitt....
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....es out of which Bank interest was to the tune of Rs.1,45,19,120/-. As against this, the assessee has received Bank interest for Rs.72,81,257/- and other interest income of Rs.8,76,558/- thereby, net claim was Rs.1.23 Crores. The Assessing Officer has given a finding that interest free advances were given out of the interest bearing funds. It was also the finding that frequent transactions and transfers have taken place during the year with associates concerns. Considering that assessee has shown only nominal income on the amounts advanced by the sister concern, the Assessing Officer disallowed 20% of the amount on ad-hoc basis in addition to disallowance under section 14 A. Even though the assessee has contented the availability of funds and also claim of netting of interest for any disallowance, the Ld. CIT(A) did not consider the same. 21. As per the findings given in the earlier year, there is only one direct nexus of borrowed fund being advanced to sister concern, i.e. borrowed fund of Rs.2.00 Crores from Mr. C.U. Shah. Therefore, consistent with the finding in AY 2007-08, the interest paid to Mr. C.U.Shah on the borrowed Rs.2.00 Crores made during the year has to be disallowe....
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....harges, in the interest of justice, we admit the additional evidence. Since those documents were not placed before the Assessing Officer or before the CIT(A) we restore this issue to the file of the AO to examine the facts and examine the issue afresh, whether any disallowance under section 40(a)(ia) is warranted, In case these are D-mat charges paid to the Bank as contended, question of disallowance does not arise. With this observations/ directions the issue in ground No.9 is restored to the file of the AO for examination of facts and consequential decision thereof. Ground is considered as allowed for statistical purposes. 24. In the result the appeal is considered partly allowed. ITA No. 2345/ Mum/2012 - AY 2012 25. This is the Revenue Appeal against the decision of the CIT(A) on the issue of deemed dividend under section 2(22)(e). only one ground is raised. 26. During the course of scrutiny assessment the Assessing Officer noted that Assessee has advanced a sum of Rs.22,99,87,059/- to M/s Bakliwal Securities Pvt. Ltd. and after noticing that assessee has profits to an extent of Rs. 6.12 Crores, the Assessing Officer invoked the provisions of section 2(22)(e) as deemed divid....