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2018 (5) TMI 1630
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....ee being NPFC should have charged interest. 2. On facts and circumstances of the case, the CIT(A) has erred In restricting the alternative addition of interest paid u/s 36(1)(iii) to Rs. 14,76,678/- only against proposed disallowances of Rs. 99,44,878/- by the Assessing Officer. 3. On facts and circumstances of the case, the CIT (Appeals) has erred in restricting the disallowances of foreign education expenses of Rs. 42,89,759/- to Rs. 7,32,177/- only without appreciating that this expenditure was personal in nature and should have been disallowed in full. 4. On the facts and circumstances of the case and in law, the Ld. CIT (Appeals) has erred in directing to compute the disallowances u/s 14A Rule 8D by excluding the interest expenses of Rs. 50,60,179/- in respect of term loan and car loan. 5. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. " 3. The assessee has raised the following grounds of appeal :- " 1. The order is passed by the learned Commissioner of Income Tax (Appeals) is against the law and facts of the case. 2. The learned Commissioner of Income Tax....
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....11/- applying the interest rate @ 12%. The reasons given by him for disallowance are in para No. 3 as under :- " 3. Addition on account of Interest free loans given to its sister concern From the detail and information furnished by the assessee company it is noted that the assessee has given huge interest free loans to its subsidiaries and sister concerns. Party wise detail and loan given is summarized as under :- S. No. Name of the party Capital Opening balance of loan Closing balance of loan Interest charge 1. Triumph Property Ltd. 7,47,500/- 12,45,00,000/- 12,48,50,000/- Nil 2. e Financial Consultant Ltd. 5,00,000/- 93,00,000 91,00,000/- Nil 3. Cypriot Consulting Ltd. 5,00,000/- 1,85,04,722/- 1,81,04,722/- Nil 4. ne Pharmacies (India) Ltd 5,00,000/- 1,95,70,900/- 1,93,66,500/- Nil 5 RTC Restaurants (India) Ltd. 1,00,00,000/- 7,58,17,499/- 10,69,77,814/- Nil 6. Durant India Ltd. 21,55,584/- 21,66,259/- Nil 7. arro Restaurants....
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....d that perusal of the balance sheet would show that the own funds of the assessee company which are m the form of share capital and reserve e and surplus are more than 150 crores. Thus, the funds advanced to sister concern i.e. wholly owned subsidiary companies have to be attributed to the own funds. Stand of the assessee company is fully supported by various judgments as under:- i) Commissioner of Income Tax Vs. Bharti Televenture Ltd. ii) CITVs. Dalmia Cement Bharat Ltd. (2009) 183 Taxman 422 (Delhi) iii) CIT Vs. South India is Corpn. (Agencies) Ltd. 209 CTR (Mad) 233. iv) CIT Vs. Steri Sheets Ltd. (2007) 106 TTJ 460 (Delhi). Perusal of the above cases show that three of the judgments out of the four judgements pertained to Delhi High Court i.e. jurisdictional High Court. " 3.4 The above submission of the assessee has been gone through and considered carefully, but found unsatisfactory. None of the case laws cited by the assessee is pertaining to the Non Banking Financial Company, thus, facts of the cases quoted by the assessee are quite different from the facts of the case under reference. Hence, the judgments referred by the....
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....ry concerns, I find that the appellant had given detailed reply to the AO during the assessment proceedings, the crux of which was that the appellant had used own funds of Rs. 156 crores in making interest free advances to its sister concerns. The appellant had also relied upon certain case laws the gist of which was that the funds / advance to wholly owned subsidiary companies have to be attributed to own funds. The Id. AO on examination of the reply of the appellant held that these decisions did not apply to the NBFC. However, no finding was given on the source of funds given to the subsidiary companies. I also find that during the year the appellant had given new loans of Rs. 3.08 crores only to its subsidiary companies. 6.3 Under the above circumstances, since the appellant had used its own funds to its 100% subsidiary companies, there was no reasonable ground on the part of the AO of holding that the appellant should have charged interest thereon, it is a settled law that the AO cannot sit it the shoes of the business-man. Moreover, reliance of the appellant on the decision in the case of CIT vs Bharti Televenture Ltd, (spura), CIT vs Dalmia Cement Bharat Ltd.(supra),....
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....(iii) to the extent of interest paid to its group companies of Rs. 14,76,678/-. Accordingly, this ground is partly allowed in favour of the appellant." 8. Therefore, the learned CIT (Appeals) sustained the disallowance of Rs. 14,76,678/- which was the interest paid by the assessee to the three companies. In nutshell, out of the total interest disallowance of Rs. 94,44,877/- the learned CIT (Appeals) sustained the disallowance of Rs. 14,76,619/-. 9. The learned authorized representative vehemently contested the sustenance of disallowance raising the following issues :- i. He submitted that no opportunity was given to the assessee by the learned Assessing Officer while disallowing the sum of Rs. 94,44,878/-. He relied on the decision reported in 192 ITR 165 and 176 ITR 179 to buttress his claim. He also submitted a detailed note contesting the above addition; ii. He further stated that no addition on account of notional interest was made in the hands of the assessee from assessment year 2004-05 to assessment year 2012-13 where except the impugned year in which assessee is in appeal. He submitted that all the assessments were passed under section 143(3) of the ....
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....t find any reason to sustain the disallowance of interest confirmed by the learned CIT (Appeals) of Rs. 14,76,619/- under section 36(1)(iii) of the Act. 13. In the result, ground No. 2 of the appeal of the assessee is allowed and ground Nos. 1 and 2 of the appeal of the Revenue are dismissed. 14. All the other contentions raised by the learned authorized representative become academic in nature in view of our above decision. Therefore, at this moment they do not merit our consideration as assessee has been granted relief on other contentions. 15. The second issue involved in the ground No. 3 of the appeal of the Revenue and ground No. 3 of the appeal of the assessee is with respect to allowance of deduction of foreign education expense of Ms. Sheetal Jain amounting to Rs. 42,89,759/-. The learned Assessing Officer noted that assessee has debited Rs. 42,89,759/- as staff education expense in profit and loss account. The learned Assessing Officer disallowed the above expenditure vide para No. 7 of his order as under :- " 7. Disallowance of expenses incurred on account of staff education. 7.1 On perusal of profit & loss account, it is noted that the assessee....
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.... benefits consequently, it cannot be treated as capital asset and hence not capital expenditure. Thus/ the expenses incurred by the assessee company in providing professional qualification to one of the directors are revenue expenditure duly eligible in the year under assessment. 7.3 The above submission of the assessee has been gone through considered and carefully but found to be not satisfactory. The case laws quoted by the assessee is irrelevant and based on quite different facts. The assessee by any means could not prove the business expediency of expenses incurred in connection to foreign education of its director. The assessee could not establish that how that education of the director is helpful for the business of the company. Moreover, the assessee could not substantiate the expenses incurred in respect of foreign education of the director by furnishing supporting evidences and documents. Further, more and most importantly, the education being provided to the staff/director of the company is not directly related to day to day business of the assessee for the year under reference, hence; it could not be treated as a revenue expenditure incurred for business purpos....
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....pellant company, with different lines of business. With the latest development and up-gradation of capacity, understandably, such director would be able to contribute better towards business growth of the appellant company. There is no reason given by the Id. AO as to how the MBA course from an internationally well known Institution did not have any business connection with the appellant's business. 6.6.2 Another alternative ground taken by the AO was absence of bills and vouchers. The debit advices issued by the ABN Amro Bank clearly evidence that foreign remittance was made to INSEAD for the tuition fee of Ms. Sonali Jain. This is a sufficient proof for payment of fees to a foreign institution, for which money is generally paid by wire transfer. Further, the copy of letter by the company to INSEAD confirms that the company was sponsoring the director's education. Similarly declaration for FCRA and bill of INSEAD regarding tuition fee, application fee and a copy of document in support of transfer of money to the bank account of INSEAD also prove the bonafide of the transaction. Based on above, I hold that the evidences furnished by the appellant are strong enough ....
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....owards living expenses (excluding housing expenses of Rs. 4,91,013/-) as under :- Date Narration Amount 14/05/2009 Internet Banking 10,682/- Different dates Amex Credit card 1,28,625/ Different dates Citi Bank Card 2,78,814/- 28/10/2009 S P Securities 1,88,110/- - S P Securities 86,610/- Total 6,92,841/ It was informed that Ms. Sonali Jain, during the MBA course preferred to live in a service apartment, instead of being in the institutional premise, the expenses in which regard are being allowed by me. Moreover, with regard the amounts transferred for meeting living expenses, in the absence of any details, element of personal nature therein cannot be ruled out. Accordingly 40% of such expenses are also disallowed. 6.6.5 In view of this, the appellant is allowed full claim of tuition fee of Rs. 25,91,194/-, LMP Housing Services for residence of the said director amounting to Rs. 4,91,013/-, and to & fro air travel expenses of Rs. 59,670/- and 60% of living expenses amounting to Rs. 4,15,705/-. In view of this, the total claim is allowed to the extent of Rs. 35,57,582/- only. " 17. There....
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....nt by the student to serve the assessee company post education. 21. The learned authorized representative relied upon the decision of 365 ITR 436 of the Hon'ble jurisdictional High Court where such expenditure is allowed. 22. We have carefully considered the rival contentions as well as perused the orders of the lower authorities. One Ms. Sonali Jain, who was Director of the company since 2006 was looking after the business of the company. She got an opportunity to study MBA Programme in Singapore and, therefore, the Board decided to support her education expenditure vide Resolution dated 15.10.2008. The main purpose was shown by the company that her education would be useful in expanding the export business of the company in long run. The learned CIT (Appeals) has considered the Resolution passed by the company and the business expediency. It is undisputed that the assessee was Director of the company and was working with the company. Therefore, in nutshell this expenditure is in the nature of training expenditure of the Director herself. The learned CIT (Appeals) also noted the details of the programme and held that it has direct business relevance to the assessee. In view ....
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....apers related to the tuition fees and admission fees, which has already been allowed by the learned CIT (Appeals). As the assessee could not provided any itemized details supported with the vouchers and bills of three parties, we find no infirmity in the order of the learned CIT (Appeals) in restricting the allowance of living expenses to the extent of 60%. 25. In the result, ground No. 3 of the appeal of the Revenue and ground No. 3 of the appeal of the assessee are dismissed. 26. Ground No. 4 of the appeal of the Revenue is with respect to deletion of disallowance under section 14A of Rs. 50,60,179/-. The brief facts show that assessee has earned dividend income of Rs. 1,24,30,074/- and it has disallowed Rs. 35,77,395/- under section 14A of the Act. Assessee also submitted the working of the disallowance. The learned Assessing Officer rejected the same and applied Rule 8D of the Act and made further disallowance of Rs. 2,72,535/-. On appeal before the learned CIT (Appeals), he directed the Assessing Officer to exclude Rs. 50,60,179/- from the interest expenditure as the interest has been paid for term loan and vehicle loan. The Revenue is contesting the same. 27. The lea....