TaxTMI 
TaxTMI 
2018 (10) TMI 1113
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.... No. 2 as under: "2) Enhancing the disallowance u/s 36(1)(iii) from Rs. 57,89,101/- to Rs. 1,26,36,772/-". 3. Briefly stated facts of the case are that in the case of the assessee a search and seizure action under section 132 of the Income-tax Act, 1961 (in short 'the Act') was carried out on 24/09/2009 and consequently, a notice under section 153A of the Act was issued on 28/04/2010. In compliance, the assessee filed return of income, declaring loss of Rs. 1,99,40,112/-. Thereafter, notices under section 143(2) and 142(1) of the Act were issued and complied with. The assessment was completed on 29/12/2011 after making certain additions/disallowances. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal, but enhanced the disallowance on one issue. Aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 4. In ground No. 1, the assessee has challenged disallowance made under section 14A of the Act. The facts qua the issue in dispute are that at the relevant year-end i.e. 31/03/2008 the total investment in shares etc. stood at Rs. 27,04,02,581/- and ITA No.608....
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....69,47,970/- was held to be expenditure by way of interest not directly attributable to any particular income or receipt. Accordingly, the Ld. CIT(A) recomputed the disallowance as per Rule 8D of the Rules at Rs. 82,17,976/-. Before us, the Ld. counsel of the assessee submitted that the Assessing Officer made disallowance without discovering any type of dissatisfaction regarding the claim of the assessee that no expenditure had been incurred toward the dividend income. The Ld. counsel further submitted that the assessee earned dividend income from the old investments, which was made by the assessee from the own funds and during that period there was no loan appearing in the balance sheet. The Ld. counsel emphasised that dividend received is by way of a single payment received on 71, 18, 364 equity shares of M/s Tulip IT Services (Telecom) Ltd @ Rs. 2 per share on 20/11/2007 and there is no other transaction in dividend ledger during the year. 4.3 It was submitted that all the investment (except the investment in M/s Cedar Hospitility of Rs. 3.25 crores ) was made out of own business funds as the details of utilization of the borrowed funds were duly submitted before the Revenue d....
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.....77 Crores, from the borrowed funds, to its sister concerns and charged interest @ 20%, whereas it has paid interest on the borrowed funds @ 14%. 4.8 In support of the contention, that no disallowance could be made without recording dissatisfaction on the claim of the assessee of having incurred no expenditure for earning exempt income, the learned counsel relied on following judicial pronouncement: a) Godrej & Boyce Manufacturing Company Ltd. Vs. Deputy Commissioner of Income Tax & Another, (2017) 295 CTR 121 (SC); b) CIT Vs. I.P. Support Services India (P) Ltd., (2015) 378 ITR 240 (Del.); c) Maxopp Investment Ltd. & Others. Vs. CIT, (2012) 247 CTR 0162 (Del.); d) ACB India Ltd. {Formerly MS Aryal Col Benefications (P) Ltd.}, (2015) 374 ITR 108 (Del); and e) Amway India Enterprises (P) Ltd. Vs. Income Tax Officer, (2014) 91 CCH 4 (Del.); 4.9 The learned DR, on the other hand, relied on the finding of the Ld. CIT(A) with reference to investment in group companies, he submitted that in view of the decision of the Hon'ble Supreme Court in the case of Maxopp Investment (supra) disallowance under section 14A has to be made in case of s....
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.... assessee of no expenditure incurred towards investment activity and proceeded to re-compute the disallowance under section 14A of the Act. The finding of the Ld. CIT(A) are reproduced as under : para 4.3.2 to 4.3.9 of Ld. CIT(A) . "4.3.2 Though appellant has accounted trading turnover of Rs. 25.57 Crores, there is hardly any income from trading activity. There is loss of Rs. 57.35 lakhs. This is when around 60% of the purchases (Rs. 9.52 Crores) are from the Group Concerns themselves. Not only that, almost 50% of the sales are again made to the group concern only (Rs. 13 Crores). It is also noted that the P&L A/c shows a net loss as above in spite of the dividend income of Rs. 1.42 Crores and other income of Rs. 2.68 Crores credited to P&L A/c. As against this the appellant has made an investment of Rs. 27.04 Crores out of which Rs. 8.97 Crores relates to current Year's addition to the investment. Thus it is clear that the appellant is engaged in investment activity and therefore it cannot be denied that considerable man power and resources must have been employed/utilized for investment activity. The appellant has not come forward to provide the breakup of expenses relat....
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.... The same works out to Rs. 30,29,178/- as per the working given by the AR. 4.3.5 For the purpose of computing disallowance under rule 8D the interest of Rs. 1,26,36,112/- directly relating to the funds which have been diverted and advanced to Tulip Telecom Ltd and Tulip Singapore cannot be treated as interest which is not directly attributable to any particular income or receipt. 4.3.6 It is seen that the appellant has claimed to have earned interest from sums given to Golf Technologies Private Limited and Firepro Wireless and Technologies Private Limited. However the ledger accounts of the said two concerns show that there are several purchase and sale transactions in the said account. In the case of Golf Technologies the appellant has classified certain payments as loan. However it is observed that there are also purchases matching the same loan amounts on different days. Thus I find that the classification given by the appellant to some payments as loan is an artificial one. The reasons are not known. Further there are also receipts in the same account. Similarly in the case of Firepor there are considerable sale and purchase transactions. The total credits are....
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.... TOTAL = Rs.82,17,976/-" 4.13 In our considered opinion, the recording of dissatisfaction whether expressly or impliedly, is a requirement of law for making disallowance by the Assessing Officer and the Ld. CIT(A) cannot substitute the said dissatisfaction, which the Assessing Officer is required to record. Though on the merit, the Ld. CIT(A) has correctly recomputed the disallowance by way of segregating the interest expenditure directly related to investment for earning exempt income and interest which could not be directly attributable to any particular income, but once he himself has held that mechanical applying of Rule 8D by the AO is not tenable in view of the judicial pronouncement relied upon by the Ld. AR, he cannot proceed to recompute the disallowance. 4.14 We also note that as per the records available before us, the Revenue has not filed any appeal challenging the finding of the Ld. CIT(A) that Assessing Officer has not given any finding as to dissatisfaction on the claim of the assessee of no expenditure incurred towards investment activity. 4.15 In view of the above facts and circumstances, the action of Ld. CIT(A) in proceeding on merit to re....
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.... 6 Repayment of loan 91740839 7 ROC Fees Paid 140052 8 Payment to Tulip Singapore 10732990 Total 758952608 11250425 5.4 It is observed by the Ld. CIT(A) that on the amounts given to to sister concerns namely (Golf Rs. 15.75 Croes and Firepro Rs. 5.01 Croes) the assessee collected interest at the rate of 20%, however, on the amounts utilized in the form of Cedar Hospility (Rs.3.25 Crores), advanced to suppliers (Tulip Telecom -Rs. 41.09 crores) and payment to Tulip Singapure (Rs. 1.07 Crores) no interest was charged. 5.5 The Ld. CIT(A) held that the advance to M/s Tulip Telecom of Rs. 41.08 crore was not for the purpose of business observation as under: "4.4.8 It is noted here that the appellant claims that it has transferred the loan fund to Tulip Telecom Ltd as advance to suppliers. However, it is noted that the turnover of the appellant company in the following year i.e. F.Y.2008-09, was just Rs. 18.75 crore as against Rs. 41.08 crore claimed to be the advance to suppliers. If the amount was paid to Tulip Telecom Ltd as advance for purchase, then the appellant should hav....
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.... the year and the balance outstanding was only of Rs. 6.16 crores. The learned counsel in support of the contention that no disallowance could be made under section 36(1)(iii) of the Act relied on the decision of the Hon'ble Delhi High Court in the case of CIT Vs Lalsons Enterprises (2010) 324 ITR 426 (Del). The learned counsel further submitted that the financial institution/Banks can only provide funds to the company for the purpose of business and thus the advancement of fund for the purpose of the business cannot be ruled out. 5.9 On the other hand, Ld. DR relied on the finding of the Ld. CIT(A) and submitted that in view of the decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries reported in 268 ITR 1 the funds advanced to sister concern for non-business purposes are liable for disallowance under section 36(1)(iii) of the Act. 5.10 We have heard the rival submissions and perused the relevant material on record. In the facts of the case, it is undisputed that the assessee has borrowed more than Rs. 75 crores with interest rate of Rs. 14 percent and out of which amount of Rs. 42.16 crore has been advanced to two sister concerns, namely, M/....