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2017 (7) TMI 260
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.... Rs.27743861 Under Rule 8D(iii) Rs.20203796 Total Rs.47947657 Less: Already disallowed Rs.22997000 Balance disallowance Rs.24950657 3.That the learned CIT(A)-II has failed to appreciate the following submissions:- a) That while making the disallowance the gross interest at Rs. 70088642/- of the main unit and of the Sahibabad unit has been considered while only the interest paidbythemainunitatRs.67143369/- was liable to be considered. b) That interest received at Rs. 8,40,86,604/- has not been deducted from the figure of interest paid. c) That the interest of Rs. 2,78,564/- capitalized by the AO has not been reduced from the amount of interest. d) That the investments made in the earlier years, which have been held by the appellate authorities are out of own funds, have wrongly been considered as investments for computing disallowance u/s!4A Rule 8D. e) That the investments, on which no exempt income has, been derived during the year, are not covered U/S.14A. f) That the investments which have potentiality to earn both taxable and exempt income are not covered U/S.14A. g) That the inves....
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....d interest expenses of Rs. 15,80,83,002/-. The Assessing Officer asked the assessee to explain why the provisions of section 14A r.w.r. 8D of the Income Tax Rules may not be applied in this case. The assessee submitted reply in the matter. The Assessing Officer observed that the computation of deduction u/s 14A r.w.r. 8D was not as per said section and rule. The Assessing Officer asked the assessee to explain why the computation submitted by the assessee may not be rejected and the computation may not be made for disallowance u/s 14A of the Act in accordance with rule 8D. After considering assessee's submissions on this issue the Assessing Officer computed disallowance under rule 8D(2)(i) at nil, rule 8D(2)(ii) at Rs. 6,11,67,005/- and under rule 8D(2)(iii) at Rs. 2,02,03,796/-, and the total disallowance was accordingly computed at Rs. 8,13,70,801/-. The Assessing Officer further noted that the assessee had himself disallowed an amount of Rs. 2,29,97,000/- and accordingly computed the disallowance to be made u/s 14A at Rs. 5,83,73,801/-, over and above the amount disallowed by the assessee. 6. Before the Ld. CIT (Appeals), the assessee made detailed submissions reproduced at pa....
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.... no investments were made by the C.R. division of the assessee, the interest incurred by that division had to be excluded for the purpose of calculating deduction u/s 8D (2)(ii) of the Act. He further directed that even the assets of the C.R. division were to be excluded in the total assets to be taken for the purpose of computing disallowance under rule 8D(2)(ii) of the Act. The Ld. CIT (Appeals) also agreed with the assessee's contention that the total assets to be taken for the purpose of computing the disallowance was to be taken at the total value as disclosed in the Balance Sheet and the current liabilities and provisions were not to be deducted from the same. He accordingly directed the Assessing Officer to recompute the disallowance in accordance with the aforesaid findings. 8. Aggrieved by the addition upheld by the Ld. CIT (Appeals) the assessee has now come up in appeal before us. During the course of hearing before us, the Ld. counsel for the assessee stated that the issue is covered in its favour by the decision of the I.T.A.T., Chandigarh Bench in the case of the assessee for assessment year 2008-09 & 2009-10. The Ld. counsel for the assessee pointed out that on id....
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....,854/-. From these figures, it is quite clear that own funds and reserves of the assessee are more than sufficient to cover the investment made during the year. In such a scenario, it can be very conveniently presumed that all the investment have been made out of own funds. For this purpose, reliance is placed on the judgment of Hon'ble Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. Vs. CIT in ITA No.624 of 2013 (O&M) dated 24.7.2015, whereby it has been held as under : "16. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay 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 c....
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....d that it had suo moto made a disallowance of Rs. 2,29,97,000/- on account of the same, while as per the order of the Ld. CIT (Appeals) the disallowance was to be Rs. 2,02,03,796/-. The Ld. counsel for the assessee submitted that the assessee had suo moto disallowed more that what was directed by the Ld. CIT (Appeals), no further disallowance for administrative expenses as per rule 8D(2)(iii) of the Act was called for. The Ld. DR did not dispute the same. In view of the same since we find that the assessee suo moto had made more disallowance on account of administrative expenses u/s 14A r.w.r. 8D(2)(iii) than what was directed by the Ld. CIT (Appeals), there is no reason for making any further disallowance and disallowance made is, therefore, deleted. 13. In Ground No.8 raised by the assessee, the assessee has challenged the action of the Ld.CIT(A) in upholding the disallowance of interest of Rs. 55,57,069/- made on account of difference of interest charged from Hero Motors on loan of Rs. 60 Crs. 14. The brief facts relevant to the issue are that the Assessing Officer noted during assessment proceedings the assessee had given loan of Rs. 60 Crores to M/s Hero Motors Ltd. @ 6%....
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....'ble Delhi High Court in the case of CIT Vs. M/s Dalmia Cement Ltd. (2002) 254 ITR 377. The I.T.A.T. also observed that the Hon'ble Supreme Court in assessee's own case had held that no notional addition on account of lesser rate of interest charged could be made. The relevant findings of the I.T.A.T. at para 16 of the order are as follow: "16. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts of the case are that the assessee has given loan of Rs. 10 crores to M/s Hero Motors Ltd. @ 6%. It has amply been demonstrated before us that the company is a cash rich company and has huge own funds which goes to the tune of around 652 crores, while the total loans and advances given by it are at around 116 crores. In this scenario, it can safely be presumed that the assessee had given loans out of its own funds. However, in the said case, the assessee had not given interest free loans, rather the case of the Assessing Officer is that the interest charged is at a lesser rate. It has been held in the case of CIT Vs. Dalmia Cement Ltd. (2002) 254 ITR....
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....s relating to the issue are that the Assessing Officer called for details for capital work-in progress for the year and asked the assessee as to why interest on the same may not be capitalized. The assessee submitted that C.R.(Cold Rolling) division of the assessee had already capitalized interest on capital work-in progress at Rs. 5,69,168/- and further submitted that the remaining expenditure on capital work-in-progress was only routine type towards modification/replacement in the existing machinery installed and, therefore, was in the nature of extension of existing machinery. The Assessing Officer was not satisfied with assessee's submissions and worked out total interest to be capitalized on the work-in progress at Rs. 8,47,732/- and accordingly disallowed the additional amount of Rs. 2,78,564/- out of the interest expenditure. 22. The Ld. CIT (Appeals) upheld the disallowance following his decision in assessee's case for assessment year 2009-10. 23. Before us, Ld. counsel for the assessee contended that identical issue had been dealt with by the I.T.A.T., Chandigarh Bench in assessee's case for assessment year 2009-10 in ITA No.314/Chd/2013 dated 16.2.2016 wherein the d....
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....the coordinate Bench,we allow this ground of appeal" 24. The facts in the present case are identical to that in the preceding year. The investments made in capital work-in-progress in the impugned year amounted to Rs. 6,06,85,936/-. The profits earned by the assessee during the impugned year amounted to Rs. 342.98 crores. Thus the assessee had sufficient funds for the purpose of making investment in the capital work-in-progress and the decision rendered in assessee's case for assessment year 2009-10 will, therefore, squarely apply in the present case also following which we hold that no disallowance of interest on account of investment made in capital work-in progress is warranted and disallowance made to the extent of Rs. 2,78,564/- is, therefore, directed to be deleted. Ground No.9 of assessee's appeal is, therefore, allowed in the above terms. 25. Ground No.10 raised by the assessee was not pressed before us and is, therefore, treated as dismissed. 26. The appeal of the assessee is therefore partly allowed. ITA No.758/Chd/2014(Revenue's Appeal) : 27. Ground No.1 raised by the Revenue reads as under: "1.(a) That the Ld. CIT(A)-II, Ludhiana has erred in law....
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..... 7,55,25,848/-. 31. Brief facts relevant to the issue are that the Assessing Officer noted that the assessee had paid commission amounting to Rs. 9,79,45,458/- to M/s Munjal Sales Corporation. The Assessing Officer asked the assessee to furnish the details of the terms on which the commission was paid, to justify the service rendered by the agent, to provide the qualification of the employees of the agent and nature of job to justify the payment made when already heavy salaries were being paid to the Directors and to also state substantial interest of the assessee in the commission agent. The assessee filed detailed submissions during assessment proceedings in response to the above query of the Assessing Officer, which are mentioned at para 5.1 of the Ld. CIT (Appeals)'s order. The Assessing Officer was not satisfied with the assessee's submissions and observed that the justification for the commission @ 1% given to Munjal Sales Corporation had not been answered by the assessee. The Assessing Officer also pointed out that the total expenditure of Munjal Sales Corporation was only Rs. 1,85,34,025/- as against which commission income of Rs. 8,87,99,145/- had been earned. |Thus th....
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.... were excessive and has disallowed the same. The only issue to be considered here is that in the given facts and circumstances of the case", was the AO justified in disallowing a part of the commission expenses on the ground that the same were excessive or not. In this regard the following facts need consideration: 1. M/s Munjal Sales Corporation, a partnership concern, established in the year 1962 had been acting as a sole selling agent for the appellant company since its inception. 2. M/s Munjal Sales Corporation had also acted as sole selling agent for other group concerns namely M/s Majestic Auto Ltd., M/s Rockman Industries Ltd., M/s Highway Industrial Ltd. 3. The appellant company has passed a resolution in the Board meeting held on 29.03.2007 for reappointment of M/s Munjal Sales Corporation as sole selling agent of the appellant company for a further period of 5 years w.e.f. 01.08.2007ontheoldtermsandconditions mentioned in the agreement. 4. The appellant company had filed an application in form 1 to the Ministry of Corporate Affairs for reappointment of sole selling agent. 5. The Ministry of Corporate Affairs, Govt. of India had....
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....the payments made by the appellant to M/s Munjal Sales Corporation were excessive. From the detailed facts mentioned above it is apparent that the appellant was paying commission to M/s Munjal Sales Corporation at the same rate of 1% for the last many years and the same had been accepted by the department. It is evident that the commission had been approved by the Board of Directors and the share holders and also by the Ministry of Corporation Affairs. Moreover both the appellant as well as M/s Munjal Sales Corporate had paid taxes at the same rate and the transaction was revenue neutral. In fact, on account of the payment of service tax by the appellant with relation to the commission paid to M/s Munjal Sales Corporation, the total amount of tax paid on account of the aforesaid transaction was more than the taxes which would have been required to be paid by the appellant in case the commission was not paid. In view of all the aforesaid facts and circumstances of the case it cannot be held that the commission payment made by the appellant to M/s Munjal Sales Corporation were excessive. Reference in this regard may be made to the decision of the Hon'ble P&H High Court i....
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....nding of fact in this case that the two parties were not related u/s 40(A)(2) and therefore no disallowance could be made in this case on the ground that the payments were excessive. b) In CIT v. Glaxo Smithkline Asia (P.) Ltd. (2010) 36 (I) ITCL 588 (SC): (2010) 195 Taxman 35 (SC), it so happened that the assessee did not have any employee other than a company secretary and all administrative services relating to marketing, finance, HR etc., were provided by Glaxo Smith Kline Consumer Healthcare Ltd. (GSKCH) pursuant to an agreement under which the assessee agreed to reimburse the costs incurred by GSKCH for providing the various services plus 5°o. The costs towards services provided to the assessee were allocated on the basis suggested by a firm of CAs. The Assessing Officer disallowed a part of the charges reimbursed on the ground that they were excessive and not for business purposes which was upheld by the Commissioner of Income Tax (Appeals). However, the Tribunal deleted the disallowance on the ground that there was no provision to disallow expenditure on the ground that it was excessive or unreasonable unless the case of the assessee fell within the sc....
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....972] 86 ITR 11 (SC). It was, thus, contended by the learned counsel for the assessee that it was for the lessee to decide what is reasonable payment for exploitation of assets of another business man and taking into account such commercial consideration the agreement referred to supra had been entered into which is not in doubt and the payments made thereunder, therefore, are not covered by the section invoked by the authorities below. Amounts paid may be fully allowed." The Hon'ble ITAT held as under: " 20. The payments made under the agreement duly reached the lessor and the lessor company has been assessed to tax on these sums in the assessment years 1978-79 and 1979-80. Thus, applying the principles laid down by the Supreme Court in the case of J.K. Woollen Manufacturers, we give a finding of fact that our conclusion on facts is that the payments envisaged under the agreement are real, that these have been incurred by the assessee-firm in the character of a trader and that these are wholly and exclusively laid out for the purpose of the business of the assessee. The agreement was a genuine document and acted upon by the parties. The payments are on facts o....
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....ppeals) while the Ld. DR relied upon the order of the Assessing Officer. 34. We have heard both the parties. We have gone through the findings of the Ld. CIT (Appeals) and we find no infirmity in the same. The Ld. CIT (Appeals) has dealt with the issue in detail outlining the facts that the said agent had been acting as the sole selling of the assessee since 1962 and relevant application had been field to the Ministry of Corporate Affairs on its reappointment as sole selling agent on 29.3.2007 which the Ministry had approved on old commission rate of 1% of turnover. The Ld. CIT (Appeals) has also given a finding that the Board of Directors had also approved the said rate. The Ld. CIT (Appeals) has further pointed out that this rate of commission has always been accepted by the Department in the past. The Ld. CIT (Appeals) has also pointed out the fact that both the assessee and Munjal Sales Corporation had been paying taxes at the same rate and that Munjal Sales Corporation was not a person covered u/s 40(A) of the Act. All these facts have not been controverted by the Ld. DR before us. In view of the above facts, we find no infirmity in the order of the Ld. CIT (Appeals) holdin....
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....he payments received by the assessee from M/s Hero Exports in the said account were proportionately too small to the amount outstanding as on any of the dates on which the payments were received. For example the first payment of Rs. 12crores in this account was received on 15.05.2009 whereas the outstanding balance on the date after this payment was Rs. 8,75,23,245/-. The Assessing Officer was of the view that the debit balances in the account of M/s Hero Exports was in the nature of providing interest free advances. The Assessing Officer asked the assessee to explain why the advances standing in the name of M/s Hero Exports and M/s Hero Motors may not be considered in the nature of interest free advance. The appellant submitted that all the transactions made by the assessee with M/s Hero Exports were in respect of sales of cycles and cycle parts to that firm. There was not even a single transaction involving any amount advanced by the assessee company to M/s Hero Exports during this year. The assessee further submitted that the opening balance in this account was Rs. 26.39 crores. The assessee had sold products to M/s Hero Exports worth Rs. 57.48 crores against which the firm had ....
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....s decision in the assessee's case for assessment year 2009-10. 41. Before us, the Ld. counsel for the assessee pointed out that the Ld. CIT (Appeals)'s order for assessment year 2009-10 had been confirmed by the I.T.A.T. in its order in ITA No.493/Chd/2013 dated 16.2.2016. 42. We have heard both the parties. We have gone through the order of the I.T.A.T. in ITA No.493/Chd/2013. At paras 35 and 36 of the said order, the I.T.A.T. has affirmed the findings of the Ld. CIT (Appeals) and held that since the assessee was making consistent sale and purchase from these two concerns, any debit balance remaining in the accounts of these concerns cannot be presumed to be in the nature of loans and advances and, therefore, deleted the disallowance made u/s 36(1)(iii) of the Act. The relevant findings of the I.T.A.T. are as follows: "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 tha....