AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 1270
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....of by way of a consolidated order for the sake of brevity. First, we take up ITA 2845/Ahd/2016 2. The grounds of appeal raised by the assessee are as under:- "1. The ld. CIT(A)-6, Ahmedabad erred in confirming the disallowance of interest on borrowings to the tune of Rs. 46,481/- 2. The ld. CIT(A)-6, Ahmedabad also erred in confirming disallowance of professional fees to the tune of Rs. 3,20,000/-. 3. Your appellant craves leave to add to, alter or delete above grounds of appeal." 3. The first issue raised by the assessee is that learned CIT(A) erred in confirming the addition of interest expenses made by the AO for Rs. 46,481/- under the provision of Section 14A r.w.r. 8D. 4. Briefly stated facts are that the assessee in the present case is HUF and deriving its income under the head capital gain and interest. The assessee in its balance sheet has shown investment in the mutual fund, equity shares and PPF aggregating to Rs. 52,20,853/- only. The assessee simultaneously has claimed interest expenses in its income tax return. The AO during the assessment proceedings observed that borrowed fund had been invested in the securities which would gene....
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....arned CIT(A). 6. We have heard the rival contentions and perused the material available on record. It is an undisputed fact that the owned funds of the assessee exceed the amount of investment as on 31st March 2013 as evident from its balance sheet which is placed on Page 12 of the Paper book. The relevant extract of the balance sheet is reproduced as under: From the above, it is clear that the owned funds of the assessee exceed the amount of investment. In such facts and circumstances, a presumption can be drawn that the investment has been made out of the owned funds of the assessee. In holding so, we find support and guidance from the judgment of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- "The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact bot....
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.... Accountant and not investment consultant. Therefore, the AO made a disallowance of Rs. 3,20,000/- out of a total claim of Rs. 5,60,000/- by making an addition to the total income of the assessee. 8. Aggrieved, assessee preferred an appeal to learned CIT(A). The assessee before the learned CIT(A) submitted that the fees were not paid to the related party and the AO is not expected to decide the reasonableness of the expenses. The assessee with the help of such professional services has made the investments as detailed under: Date Nature of investment Amount Invested (Rs.) 30-04-2012 Unique Agmart Bill discount 2,00,000 24-05-2012 Fixed Deposit with HDFC Ltd. 50,00,000 26-07-2012 Unique Agmart Bill discount 2,00,000 12-10-2012 Siddarth Canmar Mill discount 2,00,000 17-10-2012 Fixed Deposit with JP Associates Ltd. 1,40,00,000 04-01-2013 Siddharth Canmart Bill discount 5,00,000 The assessee also submitted that the amount of investments was quite huge, therefore, the reasonableness of the expenses cannot be questioned. However, the learned CIT(A) disregarded the contention of the assessee and confirmed the order of th....
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.... record and surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of account maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real one. May be the money came by way of bonk cheques and paid through the process of banking transaction but that itself is of no consequence." 13.3 Reliance is also placed in the following decisions and case laws where it is held that substance is more important than the form and the AO is empowered to bring the hidden aspect of the transaction. 13.3.1 In the case of Surnati Dayal v. CIT [1995] 80 TAXMAN 89 (SC) the Hon'ble Supreme Court has held that "There was no dispute that the amounts were received by the appellant from various race clubs on the basis of winning tickets presented by her. What was disputed was that they were really the winnings of the appellant from the races. This raised the question whether the apparent could be considered as real. Apparent must be considered real until it is shown that there are reasons to believe that the apparent is not....
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....ate veil of a company can be lifted for the purpose of ascertaining the real character of a transaction, if that transaction was a fraudulent one or was intended to evade payment of tax. While legitimate tax avoidance is always permissible, the devices adopted to evade payment of tax, however, are not permissible; though the dividing line is not always easy to draw, such a line does exist. The true character of the transaction here clearly was one of an advance of Rs. 10 lakhs by the assessee to the Bombay company for whose benefit that sum was obviously intended and had only been channeled through the investment company. The Tribunal had failed to notice the facts and had also erred in adopting the wrong approach for the purpose of deciding as to whether the amount disallowed was a sum which could properly fail within the ambit of section 36(1)(iii). The amount disallowed was the amount paid on amounts borrowed, but not used for the purpose of business or profession of the assessee. Rs. 10 lakhs "invested' in the investment company, being in substance and reality an amount advanced to the Bombay company for financing the construction undertaken by it at Bombay, could not be sa....
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....pletely ignored a list of activities comprising the professional services rendered in connection with investment of funds of appellant, furnished at para 1 to 3 of letter submitted on 22-9-2016 during appellate proceedings. e) Both the AO and Commissioner (Appeals) have failed to appreciate that whether it is a question of investing Rs. 2 crore or Rs. 20 crore, the scrutiny and analysis of available investment options involves similar activities. In CIT v. Ashok Wadia (ITA No.4555/Del/2010) / ITAT Bench 'A' Delhi and CIT v. Dalmia Cement Bharat Ltd. (Del) 254 ITR 377 a settled principle of law was reiterated that the Assessing Officer cannot step into shoes of the assessee and decide as to how which of the expenditure can be incurred. Once the expenditure has been incurred wholly or exclusively for the purposes of earning income no disallowance can be made. f) Therefore, having accepted that fees were paid for investment advisory services, to a professional not related to the appellant in any way, they should not have judged whether the fees paid were excessive or unreasonable having regard to its fair market value or the legitimate needs of the appellant.....
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.... a HUF and the professional in receipt of his fees is an independent person not related in any way to the appellant, how is it possible to view this as same persons entering into transactions by introducing a corporate personality into those transactions? In view of above submissions, your appellant prays that the disallowance of Rs. 3,20,000 from professional fees paid by the appellant may kindly be deleted." On the other hand, the learned DR vehemently supported the order of the AO. 9. We have heard the rival contentions and perused the material available on record. In the instant case, the assessee has claimed an expense of Rs. 5,60,000/- on account of professional services availed from Chartered Accountant about its investments activities. The AO was of the view that such expenses are unreasonable as per the market rate. Accordingly, he partly disallowed the expenses to the tune of Rs. 3,20,000/-. The view taken by the AO was subsequently confirmed by the learned CIT(A). Now the issue before us arises for adjudication whether the disallowances made by the lower authorities is correct as per the provisions of law. In this regard, we note that the genuineness of....