TaxTMI 
TaxTMI 
TaxTMI 
2018 (6) TMI 1523
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....onal basis on the basis of conjectures, surmises and assumptions. 3.3 That the Hon'ble CIT(A) has erred in law and on the facts and circumstances of the assessee's case in completely disregarding the detail and documents filed by the assessee with regard to disallowance of interest of Rs. 2,07,93,960/ -. 3.4 That the Hon'ble CIT(A) has failed to appreciate that this ground is covered by CIT(A) order in favor of the assessee in assessee's own case. 4.1 That the Hon'ble CIT(A) has erred in law on the facts and circumstances of the assessee's case in upholding the addition of Rs. 10,46,560/ - on estimated basis u/s 14A of the Income Tax Act. 4.2 That the Hon'ble CIT(A) has erred in law on the facts and circumstances of the assessee's case in upholding the AO's contention that there existed a nexus between the administrative expenses and the dividend income. 4.3 That the Ld. CVT(A) has erred on facts of the assessee's case in holding that the assessee has not offered any disallowance u/s 14A. 4.4 That the Ld. CIT(A) failed to follow the orders of Hon'ble ITAT in assesses's own case & earlier orders of AO where 1% of dividend i....
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....31.03.2009. The undersigned is satisfied that the assessee has furnished inaccurate particulars of its income on this account. Therefore, penalty proceedings u/s. 271(1)(c) of the Act are initiated against the assessee." 3. The Assessing Officer further observed that the assessee has claimed exempt income u/s. 10(33) of the Act amounting to Rs. 30,60,000/ -. He observed that while computing of taxable income, the assessee has not offered any disallowance u/s. 14A of the Act against earning of exempt income. In this regard, the assessee submitted that all the investments were made out of its own funds in the past and no new investment has been made during the year under consideration. The Assessing Officer after considering the submissions of the assessee applied rule 8D and calculated the disallowance of Rs. 10,46,560/ - u/s. 14A which is 0.5% of the average investment, i.e., opening balance of investment and closing balance of investments. The assessee challenged the additions in appeal before the ld. CIT(A) who upheld the action of the Assessing Officer. Aggrieved, the assessee is in appeal before the ITAT. 4. The ld. AR of the assessee submitted a written synopsis which reads....
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....has diverted its borrowed funds for the non - business use by advancing money to its subsidiary. These observations are based on the assumptions and surmises. There is no direct nexus of diversion of funds as assumed by the AO. Your honor would notice that the issue has been decided in favor of the assessee by Hon'ble ITAT in AY 2007 - 08 and AY 2008 - 09. Thus it has been held that advances given upto 31.03.2008 were not given out of any borrowed funds but out of own funds. Now in year under consideration the assessee has not paid any fresh advance to the Satara Rubber, rather outstanding as on 31.03.2009 has been reduced as compared to 31.03.2008. Thus no further addition of notional interest on account of alleged advance to sister concern is warranted. Therefore since the issue is fully covered by the earlier order in assessee's case on identical facts as also noted by CIT(A) in para 3.1 page 11 and again while deciding the appeal at Para 3.2 Page 21, it is prayed that relief on this issue may kindly be allowed. Grounds 4.1 to 4.4 - Disallowance u/s 14A Rs. 10,46,560/ - The assessee has earned a dividend income of Rs. 30.60 Lacs during the year on investment in subs....
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....ty, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. It was held by Delhi HC in case of H.T. MEDIA LTD. [2017] 85 taxmann.com 113 (Delhi) that - _____________ Para 30 - Rule 8D(l) states more or less what Section 14 A (2) of the Act states. It requires the AO to first examine the accounts of the Assessee and then record that he is not satisfied with (a) the correctness of the Assessee's claim of expenditure or (b) the claim made by the assessee that no expenditure has been incut-red. Unless this stage is crossed i.e. the stage of the AO recording that he is not satisfied with the clam of the Assessee in the manner indicated i.e. after examining the Assessee's accounts, the question of applying the formula under Rule 8D (2) does not arise. That this is a mandatory pre - requisite for applying Rule 8D (2) is fairly well - settled. It is reiterated that assessee has made no investment during the year for earning any exempt income. The investments appearing in audited financials have been made in th....
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....e Ld. AO. 5. On the other hand, the ld. DR relied on the order of the authorities below. 6. After hearing both the sides and perusing the entire material available on record, we observe that the disallowance of interest u/s. 36(1)(3) is covered by the order dated 20.08.2017 of coordinate Bench of Tribunal in assessee's own case (ITA No. 1811/Del. /2014 filed by the Revenue for A.Y. 2007 - 08). This order has also been followed by the Tribunal in the case of assessee for the assessment year 2008 - 09 vide order dated 16.10.2017. The findings of the Tribunal in A.Y. 2007 - 08 read as under: "Once it is found that the assessee company had huge surplus funds then it can be safely presumed that any such advance or interest free loan given to subsidiary is out of such surplus funds only unless the department brings on record that the surplus funds have been utilized for some other purposes and borrowed funds have been diverted to subsidiary/sister concern. The sole reliance placed by the Assessing Officer on the judgment of CIT vs. Abhishek Industries Ltd. (supra) for making the disallowance, now does not hold ground in view of the judgment of Supreme Court in the case of Munjal Sales....