TaxTMI 
TaxTMI 
2016 (2) TMI 79
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3. The Commissioner of Income Tax (Appeals)I has gone wrong in disallowing interest under section 14A in respect of the investment in the shares of M/s. Theih ingots (P) Ltd. 4. .For the above reasons and other arguments those may be put forward at the time of hearing, the appellant may submit that the CIT(Appeals) has gone wrong in confirming the disallowance of Rs. 58,36,881/- u/s. 40(a)(ia) of the act and interest on the investment of Rs. 2,70,00,000/- in Thieh Ingots (P) Ltd. 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing and trading of Iron and Steel products. For the assessment year 2009-10, the assessee has filed its return of income declaring its income at Rs. 2,82,22,068/-. The case of the assessee was selected for scrutiny by issuance of notice under section 143(2) of the Act and vide assessment order dated 25/11/2011, the following additions were made in the case of the assessee: i) Disallowance under section 40A(3)/40(a)(ia) Rs.58,36,881/-/-. ii) Disallowance under section 14A Rs.18,71,007/-. iii) Disallowance under section 40(a)(ia) Rs.12,03,585/- 4. The assessment was carried....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was to be made under section 194C of the Act. 7. We shall first take up the additional ground raised by the assessee. The assessee has contended that for lorry hire charges, provisions of section 194I would be applicable and not under section 194C of the Act. In the present case, the assessee had paid lorry hire charges to the drivers of the transporters on the transportation of the goods of the assessee. The transaction is in the nature of carriage of goods. It is not a case where the assessee hires the vehicles on rent for a fixed period. The owner of the vehicle and not the assessee, continued to have actual constructive possession over the vehicle. The assessee could not establish that any right has been transferred by the owner of the vehicle to the assessee so as to bring the transaction within the purview of section 194I of the Act. The payment for lorry hire charges in the present case is for the carriage of goods by the contractee itself. The provision of section 194I would be applicable only if the contractee was not required to carry out any work except making available, the vehicle, as per the contract for fixed hours Therefore, the transaction in the present case w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....show them as payable in the books of account of the assessee. The assessee relied upon the judgment of Hon'ble Allahabad High Court in the case of CIT vs. Vector Shipping Services (2013) 357 ITR 642 wherein it was held that the provisions of section 40(a)(ia) are applicable in respect of expenditure for which the provision was made at the end of the year. The said decision of the Hon'ble High Court was challenged by the Revenue in the Hon'ble Supreme Court and the Hon'ble Supreme Court dismissed the SLP filed by the Department in limine. 11. The Ld. DR on the other hand relied upon the order of the Ld. CIT(A). 12. We have heard the rival contentions and perused the material on record. The provisions of section 40(a)(ia) of the Act are extracted hereinbelow: 40(a)(ia) "(a) In the case of the assessee - (ia) any interest, commission or brokerage, (rent, royalty) fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that that provision of section 40(a)(ia) does not warrant an interpretation that it would be attracted only if the expenditure remained payable on the last date of the financial year. In the aforesaid decision, it was held as under: "17. Another contention that was pressed into service was that the appellants had already paid the amount and therefore, the provisions of section 40 (a)(ia), applicable only in respect of the amount which I.T. Act 278/14 & con cases remains to be payable on the last day of the financial year, is not attracted. Therefore, according to the appellants, disallowance cannot be sustained. This contention was sought to be substantiated by relying on the judgment of the Allahabad High Court in Commissioner of Income Tax v. Vector Shipping Services (P) (2013) 387 ITR 642 (All.). Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad with Rule 8D. During the course of assessment proceedings, the Assessing Officer observed that the assessee had invested a sum of Rs. 5,10,50,000/- in the equity shares of M/s. Thieh Ingots P Ltd.. The Assessing Officer held that the assessee has not attributed any expenditure towards the aforesaid investments, the disallowance was to be worked out in accordance with Rule 8D. Accordingly additions were made under Rule 8D 2(ii) and (iii) totalling to Rs. 18,71,000/-. The Ld. CIT(A) upheld the disallowance. However, the Ld. CIT(A) held that the disallowance u/s. 14A has to be limited to the extent of investment of Rs. 2,70,00,000/- instead of Rs. 5,10,50,000/- 17. It is the case of the assessee that no exempt income was earned during the year under consideration and therefore, the provisions of section 14A of the Act has no application. It was further argued by the assessee that the assessee had sufficient funds to invest Rs. 2,70,000/- and the disallowance of interest under Rule 8D was not called for. 18. The Ld. DR on the other hand relied upon the order of the Ld. CIT(A). 19. We have heard the rival contentions and perused the material available on record. It is an adm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at in the case of CIT vs. Corrtech Energy Pvt. Ltd. has held as under: "3. That leaves us only with one question which pertain to disallowance of expenditure of Rs. 12.33 lacs made by the Assessing officer u/s. 14A of the Income Tax Act, 1961 ("the Act" for short). Such disallowance was confirmed by CIT(Appeals). The tribunal in further appeal by the assessee however, reversed the same making the following observations: "13 We have heard the rival contentions, perused the material on record and gone through the orders of the authorities below. We find that the Ld. CIT(A) has decided this issue as under: 3.2 As regards interest, appellant had borrowed funds on which interest was paid. While making investments, both borrowed funds as well as own funds were used hence one cannot say that borrowed funds as well as own funds were used only for business purpose and owned capital was only used for investment. Admittedly no separate accounts are maintained for business purpose and owned capital was only used for investment. Admittedly no separate accounts are maintained for business and investment activities therefore appellant's claim is not justified that b....