TaxTMI 
TaxTMI 
2014 (8) TMI 798
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....vered by S. 40A(2)(b) were given out of own funds which are interest free. The income declared in the return itself exceeds the amount of loans paid to persons covered by S. 40A(2)(b) of Rs. 1,29,77,453/-. The income declared in the return is Rs. 3,00,36,240/- while assessed is 3,36,09,170/-. In view of the statutory presumption advances/loans were presumed to have been given out of the current income of the year on which tax is already paid then which goes to build up the interest free funds. The addition of Rs. 33,37,059/- is unwarranted and it be deleted. 3) On the facts and circumstances of the case and in law and on perusing the balance sheet of the year it transpires that the assessee-company is having interest free funds far in excess of the loans advanced to 40A(2)(b) persons. The statutory presumption applies to the facts of this case that such loans were out of interest free available funds with the assessee. The Ld. CIT(A) was not justified in sustaining the addition of Rs. 33,37,059/- by passing a cryptic order which is not in consonance with the provisions of S. 250(6) of the Act. The addition be deleted." 2.1 Facts of the case, in brief, are that the assessee is....
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.... Directors which is easily available as and when required with a short notice. 2.4 However, the assessee finally submitted before the Assessing Officer, that to keep peace of mind, the assessee offers an amount of Rs. 33,37,059/- being difference between 21% and 15.60% as worked out by it in its submission dated 03-20-2011 for taxation. It was further submitted that since the above interest paid to the loan creditors is offered for taxation penalty proceedings u/s.271(1)(c) of the Act may not be initiated. The assessee submitted a calculation statement showing the differential interest individually for each respective depositor and a list of sum showing interest actually paid, the interest that should have been paid @15.60% and the difference that has been offered for taxation. Since the assessee company offered for taxation the differential amount of interest, the Assessing Officer disallowed the amount of Rs. 33,37,059/- being excess interest paid to the persons covered u/s.40A(2)(b) of the I.T. Act. 3. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer. He observed that although certain formalities are to be observed for obtaining loan from bank and institu....
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....ai High Court in the case of CIT Vs. V.S. Dempo & Co. (P) Ltd. he submitted that the Hon'ble Court has held that no disallowance u/s.40A(2)(b) can be made unless the rate agreed to be paid is very much excessive or unreasonable. When both parties are paying tax at the same rate, there cannot be evasion of tax. Accordingly, the order of the Tribunal confirming the deletion of addition u/s.40A(2)(b) was upheld. Referring to the decision of the Pune Bench of the Tribunal in the case of DCIT Vs. Vikrant Prakash Mate vide ITA No.965/PN/2011 order dated 31-07-2012 he submitted that the Tribunal in the said case has upheld the order of the CIT(A) who had deleted the addition of Rs. 22,50,000/- made by the Assessing Officer on account of rent paid u/s.40A(2)(b) of the I.T. Act. 4.3 Referring to the grounds of the assessee he submitted that the assessee was having sufficient interest free funds. He submitted that the order of the CIT(A) is not in accordance with law and cryptic, therefore, the same should be set-aside and the grounds raised by the assessee should be allowed. 5. The Ld. Departmental Representative on the other hand submitted that since the assessee has admitted bef....
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....ging the disallowance of addition of Rs. 33,37,079/-. 6.2 So far as the decisions relied on by the Ld. Counsel for the assessee are concerned, none of the case relates to a situation where the assessee having offered for taxation of the excess amount of interest has got relief. No doubt, the banks ask lot of formalities for sanctioning of loan which are not required for loans obtained from private parties. However, in the instant case, the assessee has also obtained loan from private parties and has paid interest @9%. The assessee itself has calculated the interest to be paid to the Directors and related parties @15.60% and offered the balance amount for taxation. Therefore, under the facts and circumstances of the case, the various case decisions relied on by the Ld. Counsel for the assessee are not applicable. 6.3 We further find that the assessee in the grounds has mentioned that it has sufficient interest free funds available which are far in excess of the loans advanced to persons covered u/s.40A(2)(b). In the instant case, there is no question of disallowance of interest on account of interest free advances given to related parties. It is a reverse case wherein the asse....
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....are attributable to the exempt income. Since the addition made by the Assessing Officer and upheld by the CIT(A) is without any supporting claim in the books of account of the company, therefore, the same should be deleted. He submitted that assessee was having sufficient interest free funds available with it for making investment and the Assessing Officer having not identified any expenditure which have been actually incurred by the assessee in earning the exempt income, no disallowance u/s.14A should be made. For this proposition, he relied on the decision of Amritsar Bench of the Tribunal in the case of DCIT Vs. Jammu & Kashmir Bank Ltd. reported in 83 ITR 187. 9. The Ld. Departmental Representative on the other hand heavily relied on the orders of the Assessing Officer and CIT(A). 10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. From the copy of the assessment order, we find on being questioned by the Assessing Officer to explain as to why proportionate disallowance should not be made for claiming the dividend income as exempt u/s.10(34), the as....
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....rectly ascertained and since certain additions were made during A.Y. 2006-07 and 2008-09 by the Assessing Officer u/s.14A and nothing has been brought on record as to the outcome of the same including the quantum, therefore, we do not find any infirmity in the order of the CIT(A) upholding the disallowance made u/s.14A r.w. Rule 8D for the impugned assessment year. The case decision relied on by the Ld. Counsel for the assessee is of no help to it in absence of giving full details and to explain as to how the said ratio is applicable to the facts of the present case. This ground by the assessee is accordingly dismissed. 11. Ground of appeal No.5 by the assessee reads as under : "5) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the ad-hoc disallowance of Rs. 1,24,257/- made by the A. 0. The ad-hoc disallowance be deleted." 11.1 After hearing both the sides, we find the Assessing Officer during the course of assessment proceedings noted that the assessee company has debited the following expenses : i. Postage & Telephone : Rs.8,13,059/- ii. Furniture repair & Maintenance : Rs. 87,925/- iii. Cartage : Rs....