TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 700
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....r disallowance made in asst. year 2005-06 has been deleted by the CIT(A), Central II, Mumbai vide his order dated 23/03/2007. 2) a) The CIT(A) erred in restricting the disallowance u/s. 14A to Rs. 10,05,867/- made by the Assessing Officer in as much as no evidence was brought on record either by the Assessing Officer or the CIT(A) to show that the appellant has invested borrowed funds in assets, income from which was exempt from tax or made any other expenses to earn exempt income. b) In fact, the appellant's capital and reserves of Rs. 845 lakhs were much more that the investments of Rs. 768 lakhs and hence prima facie there was no reason to make the disallowance out of interest expenses u/s. 14A of the I.T. Act. 3) The CIT(A) erred in confirming the disallowance of payment to Employees' Contribution to Provident Fund amounting to Rs. 86,358 in view of the fact that the said amount has been paid to provident Fund Authority in time. 3. The brief facts of the case are that the assessee is a company and is engaged in the business of Stevedoring. 4. During the course of the assessment proceedings u/s 143(3) read with Section 143(2) of the Income Tax Act,1961(Hereinafter ca....
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....ause interest bearing funds have been diverted by you for non business purpose." The assessee company submitted that the assessee company has given the interest free advances to parties for business purposes which are in the nature of trading advances given to parties on account of commercial expediency. The assessee company also submitted that some of the parties have repaid the advances in the next financial year or the advances have been adjusted against the billing of those parties. The AO rejected the contentions of the assessee company as the assessee company did not file any documentary evidence to prove that the above advances have been given by the assessee company for business purposes. The AO held that the assessee company had diverted the interest bearing funds in giving the interest free advances to the above mentioned parties and hence, the assessee company's claim of interest expenditure was disallowable in view of the specific provisions of Section 36(1)(iii) of the Act. Therefore, interest at the rate of 9% is charged on the above advances totaling to Rs. 93,26,789/- which is worked out at Rs. 8,39,411/- which was added to the total income of the assessee's compa....
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....rest was deleted by Tribunal . The assessee company produced before us the copies of the assessment order, CIT(A) Order and ITAT Orders for the assessment year 2005-06, which are placed in file. The assessee company submitted that during the course of assessment year 2006-07, in all advances were given to 29 parties and out of which 16 parties are same parties as were before the Tribunal in the preceding assessment year i.e. 2005-06 and which was accepted by the Tribunal to be trade advances for business purposes vide orders dated 13-11-2009 . Thus, the assessee company contended that out of Rs. 93,26,789/- advances given as on 31/3/2006, Rs. 69,23,301/- were in respect of 16 parties which were existing in the immediately preceding assessment year and which was accepted by the Tribunal vide orders 13-11-2009 , being given for business purposes. The assessee company also submitted that it has interest free fund of Rs. 23,22,22,553/- as at 31-03-2006 , out of which share capital and reserves were Rs. 8.45 crores and interest free loans were Rs. 14.77 crores. The assessee company submitted that it has paid interest of Rs. 35,51,007/- during the previous year and since the advances wer....
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....nt proper and adequate opportunity of hearing to the assessee company as per law in compliance with principles of natural justice. We order accordingly. 8. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the AO observed that the assessee company has claimed the dividend income of Rs. 17,66,345/- and Long Term Capital Gain of Rs. 84,41,989/- as exempt income from taxation. The AO observed that the assessee company has not allocated any expenditure for earning this income which has been claimed exempt from taxation . The assessee company was show caused as to why disallowance was not made u/s 14A of the Act read with Rule 8D of Income Tax Rules,1962. The assessee company submitted that it has not incurred any expenditure in relation to earning the dividend income or long term capital gains and hence no amount can be disallowed u/s 14A of the Act. The assessee company has also submitted that Rule 8D of Income Tax Rules, 1962 is not applicable for the relevant assessment year i.e. 2006-07. The AO rejected the contentions of the assessee company and held that assessee company has derived income from business operations as well as from investm....
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....d upon the decision of Vijaylaxmi Sugar Mills Ltd. v/s. CIT (1991) 191 ITR 641 (SC) where it was held that there was no evidence to show that the expenses sought to be disallowed were to facilitated the earning of dividend. It was also submitted that the formula under Rule 8D was brought in by notification no. 45/2008 dated 24.03.2008 and can be applied in the circumstances therein only after that date and this Rule 8D is not retrospective application." The CIT(A) held that Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. CIT 328 ITR 81(Bom.), has held that Rule 8D of Income Tax Rules, 1962 is applicable from the assessment year 2008-09, but for earlier years, a reasonable disallowance is to be made. The CIT(A) held that neither the AO nor the assessee company has established any nexus of funds with the investments and other activities and therefore proportionate interest disallowed by the Assessing Officer as per rule 8D(2)(ii) of Income Tax Rules,1962 of Rs. 8,28,781/- appears to be reasonable and was confirmed for the disallowance by the CIT(A) vide orders dated 09-01-2013. The CIT(A) also held that disallowance of expenses of Rs. 3,54,172/- made by th....
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....any to produce on record cogent material/evidences to substantiate its claim that the interest free own funds are deployed for making the investments which yield tax free income and then accordingly the disallowance be worked out . The AO shall also keep in view the presumption as laid down by Hon'ble Bombay High Court in the case of HDFC Bank Limited (supra) and also other case laws relied upon by the assessee company while de-novo determination of the issue. Needless to say that the AO shall grant proper and adequate opportunity of hearing to the assessee company in accordance with law in compliance with principles of natural justice. We order accordingly. 12. The AO during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, on perusal of Annexure 3 to the tax audit report filed by the assessee company noticed that the assessee company has made delayed payments in respect of Employees' Contribution towards PF and ESIC as under:- PF Amounts(Rs) Due Date Date of Payments 18,485/- 15.04.2006 10.05.2006 3,042/- 15.07.2005 18.07.2005 2,984/- 15.09.2005 21.09.2005 2,984/- 15.11.2005 18.11.2005 12,497/- 15.07.2005 18.07.2015 11,565/....