TaxTMI 
TaxTMI 
2016 (2) TMI 1081
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....section 14A of the Income Tax Act, 1961 (in short 'the Act'). 4. The only issue is against the deletion of disallowance made by the Assessing Officer under section 14A of the Act. 5. Briefly, the facts of the case are that during the year, the assessee earned dividend income of Rs. 38,55,35,082/- and Long Term Capital Gain of Rs. 12,23,048/-. These amounts were claimed as exempt under section 10(38) of the Act. The Assessing Officer noted that the assessee had shown investments of Rs. 3,67,88,93,422/- and Rs. 3,87,34,93,407/- as on 31.3.2008 and 31.3.2009 respectively. The income from these investments were not included in the total income. The assessee had incurred interest expenditure of Rs. 22,40,02,183./-.The Assessing Officer asked the assessee to explain why the provisions of section 14A of the Act read with Rule 8D of the Rules may not be applied in this case. The assessee made detailed submissions. However, rejecting the same and invoking the provisions of Rule 8D, the Assessing Officer made disallowance of an amount of Rs. 6,77,38,889/-. 6. Before the learned CIT (Appeals), detailed submissions were made to defend the case of the assessee. After considering the sa....
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....High Court in Commissioner of Income Tax vs. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment." 9. Therefore, in such circumstances, no disallowance under section 14A of the Act on account of interest can be made. Though the learned counsel for the assessee has made alternative submissions on the computation made by the Assessing Officer under Rule 8D of the Income Tax Rules, in view of our finding that no disallowance on account of interest under section 14A an be made, we do not find any need to adjudicate these issues. 10. As regards administrative expenses, it is a fact on record that the assessee himself had disallowed an amount of Rs. 2,73,13,827/- on account of expenses incurred for earning tax free income and the Assessing Officer has nowhere recorded a finding as to why the disallowance so made by the assessee is not correct. Reliance is placed on the judgment of the Hon'ble Jurisdictional Punjab & Haryana ....
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....e cash profits to the company during the year under consideration. There is no provision under the Income Tax Act, whereby a notional income may be created as taxable income. The Department cannot guide the assessee to charge a particular rate of interest. Alternatively, it was submitted that the interest cost to the company on funds borrowed for working capital through MIBOR linked debentures during the relevant period is less than interest charged from the party i.e. varying from 3.99% to 5.56%. By assuming that the total amount has been used out of borrowed funds without establishing any such transaction is not called for disallowance under section 36(1)(iii) of the Act. After considering the submission of the assessee, the learned CIT (Appeals) held that the fact remains that the assessee had borrowed funds on which it had incurred interest expenditure. The fact also remains that the assessee had advanced loan of Rs. 10 crores to M/s Hero Motors Ltd. for non-business purposes at a subsidized rate of 6%. Relying on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Abhishek Indjustries Ltd., 286 ITR 1 (P&H), the addition so made by the Assessing Offic....
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....e the addition made by him. The ground No.8 is allowed. 17. The ground No.9 is against the action of the learned CIT (Appeals) in confirming the capitalization of interest of Rs. 6,77,388/- on the assets appearing under the head 'capital work-in-progress by adopting the interest @ 7.75%. 18. Briefly, the facts are that during the assessment proceedings the Assessing Officer noted that the assessee had shown capital work-in-progress on which interest has not been capitalized. The submission of the assessee before the Assessing Officer was that it had been availing MIBOR for which rate of interest is less than 6%. Considering the rate of 6% the total disallowance of various items showing in capital work-in-progress works out to 63,683/-. The Assessing Officer noted that in addition to the items shown by the assessee there were certain other items under the head 'capital work-inprogress', on which the interest had not been capitalized. The Assessing Officer computed the average rate of interest on borrowings at 7.75% and made the disallowance of Rs. 6,77,388/-. 19. Before the learned CIT (Appeals) the assessee submitted that no funds were borrowed for this purpose, nor the ca....
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.... the order of the CIT (Appeals) we dismiss ground No.1 raised by the Revenue." 23. Since no distinguishing facts were brought to our notice during the course of hearing, respectfully following the order of the Coordinate Bench, we allow this ground of appeal. 24. The ground No.10 is with regard to the claim of depreciation made during the assessment proceedings at Rs. 63,03,339/- in respect of expenses which have been capitalized in the earlier years and also on which depreciation was allowed in assessment year 2008-09. This ground was raised before the learned CIT (Appeals), however he observed that this issue does not arise from the order of the Assessing Officer and also the return of income shows that no such claim made by the assessee. In this view, he dismissed the ground as infructuous. 25. The learned counsel for the assessee before us made a prayer to direct the Assessing Officer to allow consequential claim of depreciation made during the assessment proceedings in respect of expenses, which had been capitalized in earlier year and also on which depreciation was allowed in assessment year 2008-09. 26. The learned D.R. relied on the order of the learned CIT (App....
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.... Officer observed that there were regular transactions between two entities but throughout the year, neither the balance has been squared off nor the debit balance has been turned into credit balance. He noted that though there were receipts from M/s Hero Exports but these were proportionately too small as compared to the amount outstanding as on any date on which payments were received. He held that the debit balance in the account of M/s Hero Exports was in the nature of providing interest free advance. The submission of the assessee was that M/s Hero Exports is a major buyer of cycles from the assessee and the amounts of sales during the year were to the tune of Rs. 68.55 crores, against which the substantial payments were received during the year and the closing balance was Rs. 29,18,92,058/-. It was also submitted that M/s Hero Exports also supplied imported cycle component for which the balance payable by the assessee to M/s Hero Exports as on 31.3.2009 is Rs. 2,79,63,545/-. Therefore, the net balance outstanding from M/s Hero Exports is Rs. 26,39,92,513/-. After considering the submissions of the assessee, the Assessing Officer held that the amounts not recovered by the asse....
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....ed. 34. The learned counsel for the assessee relied on the order of the learned CIT (Appeals). 35. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On perusal of the order of the learned CIT (Appeals), we see that he has given his finding at page 19 of his order, which reads as under : "The issue which needs consideration is that given the aforesaid facts and circumstances of the case whether any interest needs to be disallowed out of the interest expenditure on the ground that the funds were diverted for non-business purposes. It has been decided by the Hon'ble Punjab and Haryana High Court in the case of M/s Abhishek Industries Ltd. that where the funds of the appellant had been diverted for non-business purposes then the proportionate interest needs to be disallowed. However the case of M/s Abhishek Industries Ltd. is applicable only where any amount was advanced as loan. In this regard reference may be made to the case of M/s Power Drugs Ltd. Vs. Additional CIT, Range-III, Chandigarh in ITA No.313/Chd/2011. In this order, the Hon'ble I.T.A.T., Chan....