TaxTMI 
TaxTMI 
2018 (12) TMI 1679
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....s in partly deleting the disallowance of Rs. 25,69,571/-made u/s 35D of the Act. (2) The Id. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 2,10,000/-made u/s 36(1)(iii) of the Act. (3) The CIT(A) has erred in law and on fact in deleting the disallowance of Rs. 54,50,016/made u/s 14A of the Act." 4. In this case, return of income declaring income of Rs. 14,81,15,160/- was filed on 14th Sep, 2010. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) on 24th August, 2011. Further facts of the case are discussed under different grounds of appeal:- Disallowance u/s. 14A 5. During the course of assessment proceedings, the assessing officer noticed that assessee has made investment in shares of its subsidiary company and other companies as appearing in schedule-6. He observed that income from shares of domestic subsidiary companies was exempt from tax but no dividend income either from subsidiary companies or other domestic companies were shown by the assessee. Therefore, the assessee was called upon to explain why the disallowance u/s. 14A r.w Rule 8D of the IT Rule should not be made. The assessee respo....
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....perused the material on record. The assessing officer has made disallowance of Rs. 54,50,016 after invoking the provision of section 14A on the ground that assessee has not disallowed interest and administrative expenses u/s. 14A and he was of the view that interest and administrative expenses were incurred for earning exempt income. The assessee had pleaded that no borrowed funds were used for making investments in shares/mutual fund, therefore, no disallowance was required to be made. We have noticed that assessee was having huge balance in share's capital and reserves and surplus and as per audit statement, there was non-interest bearing funds to the amount of Rs. 189.55 crores whereas the investment in the shares was only at Rs. 11.63 crores. Apart from the above, we have noticed during the year under consideration the assessee has not earned any exempt income. Since the assessee has not earned any exempt income, therefore, we are of the view that no disallowance u/s. 14A is required in the case of the assessee. Vide a number of judicial pronouncements the Co-ordinate Benches of the ITAT Ahmedabad have held that the no disallowance shall be made under section 14A of the act if ....
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....urisdictional High Court in the case of Vareli Textiles Ltd 284 ITR 238 (Guj) and stated that in this case the decision of Supreme Court in Brooke India Vs CIT 225 ITR 798 (SC) was followed. Therefore, the claim of preliminary expenses of Rs. 25,61,571(Rs. 2317067 being part of last year IPO expenses and Rs. 2,52,504 being 1/5th of the IPO expenses incurred during the year ) were disallowed . 9. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee. The relevant part of the decision of ld. CIT(A) is reproduced as under:- "I am partly inclined with appellant. As far as disallowance of Rs. 1111226/- is concerned, the same was never disallowed in any of the earlier year, hence disallowance in the impugned previous year without any reason is neither justified nor sustainable. The A.O. is directed to allow such claim and delete the addition. The appellant gets relief of Rs. 1111226/-. In reference to claim of Rs. 1312701/-, following the ratio of earlier years in the case of appellant i.e. A.Y. 08-09 & A.Y. 09-10, the deduction of Rs. 900161/- is allowable while balance of Rs. 412540/-(1312701 - 900161) is dis....
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....was allowed. We have also noticed that 1/5 expenses of Rs. 52,50,805/- to the amount of Rs. 1111226/- was allowed by the CIT(A) in assessment year 2008-09 and 2009-10. Therefore, we justify the decision of ld. CIT(A) to allow the claim of preliminary expenses to the amount of Rs. 20,11,387/- consisting of Rs. 11,11,226+9,00,161. After perusal of the above facts, we observed that claim of the assessee to the amount of Rs. 11,11,226/- was never disallowed in any of the earlier years and similarly for the assessment year 2008-09 and 2010-11 the Ld.CIT(A) had allowed the deduction of Rs. 900161/-. In the light of the fact and findings reported in the decision of the Ld.CIT(A), we do not find any merit in the ground of appeal of the revenue therefore the same is dismissed. Deemed interest disallowance u/s. 36(1)(iii) 12. During the course of assessment proceedings on perusal of the details of loan and advances the assessing officer noticed that assessee has shown Rs. 20 lacs as outstanding receivable from M/s. Red Event India Pvt. Ltd. He observed that during the assessment years 2008-09 and 2009-10 the assessing officer has given the findings that amount of advances to M/s Red Ev....
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....related to the customers' of the assessee's company and such contract was cancelled, thereafter, the assessee had received back such amount from them. In the light of the above facts we are inclined with the decision of the ld. CIT(A) that assessee had used these borrowed funds for the purpose of business of the assessee. Therefore, we do not find any error in the decision of ld. CIT(A) on this issue. Accordingly, this ground of appeal of the revenue is dismissed. ITA No. 833/Ahd/2016 filed by assessee 15. The assessee has raised following grounds of appeal:- "1 . The Ld. CIT Appeals 1 Ahmedabad has erred in law and on facts in passing appellate order dated 27/01/2016 for A.Y, 2011-12 in the case of appellant by confirming disallowance made by the A.O. 2. The Ld. CIT Appeals erred in law and on facts in confirming disallowance made under section 14A of Rs. 755141 /- 3. The Ld. CIT Appeals erred in law and on facts in confirming disallowance of Rs. 27,54,269/ under section 35D. 4. The Ld. CIT Appeals erred in law and on facts in confirming addition for deemed Rental Income of Rs. 1 ,68,000 /-." Disallowance u/s. 14A 16. The assessing o....
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....ue was not materialized, therefore, the assessee company forced to withdraw the issue for reason beyond its control. In respect of the claim of expenses of Rs. 11,11,226/- being 1/5 of Rs. 33,36,127/- expenses incurred FY 2006-07 related to assessment year 2007-08, it was stated that such expenses were allowed in the past by the assessing officer, therefore, the same should have also been allowed by the assessing officer during the year under consideration. We have noticed that in the assessment year 2008-09 and 2009-10, the assessing officer has allowed preliminary expenses to the amount of Rs. 11,11,226/- as 1/5 expenses of Rs. 55,56,127/-. Further, in assessment year 2010-11 the ld. CIT(A) has again allowed the claim of the assessee to the amount of Rs. 11,11,226/- pertaining to the preliminary expenses of Rs. 5556127/-. Further, we have noticed that without any reason, ld. CIT(A) has disallowed the claim of the assessee of 1/5 of this expense to the amount of Rs. 11,11,226/- without any relevant finding this claim of the assessee is rejected during this year which has been continuously allowed in the preceding assessment years. Regarding IPO expenses pertaining to F.Y. 2007-08 ....
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....nt did not discharge its onus that these properties were utilized as guest house for the business of the appellant apart from claim of guest house expenses. In absence of evidence of usage of these properties as guest house for the purpose of appellant's business, I uphold the stand of the assessing officer that these properties are liable for tax for house property income. The basis of calculating house property income is reasonable and therefore addition made by the assessing officer of Rs. 1,68,000/- is confirmed." 20. During the course of assessment proceedings, the assessing officer has noticed that assessee was having 4 flats claimed as used for business purposes being guest houses. However, the assessing officer has treated the two flats as guest houses as decided in assessment year 2006-07 and in respect of other two flats made addition of Rs. 1,68,000/- after taking the national income @ 84,000/- per flats. The ld. CIT(A) has sustained the addition on the ground that assessee has not substantiated its claim with relevant evidences to demonstrate that these properties were used as guest houses for the purpose of business during the year under consideration. During the co....
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....the assessee company. The power plant was originally installed by the erstwhile owner during financial year 2005-06. Original cost of plant was Rs. 7,11,23,416/- and this value represent the cost to the previous owner mainly incurred during financial year 2004-05 and installation of the same was made during financial year 2005-06. He has further stated that as per provisions of section 80IA(12) when any undertaking of an Indian company which is entitled to deduction under this section is transferred before expiry of the period specified in this section to another company then clause (b) the provisions of this section shall apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. He has further stated that in this case it is not clear whether the amalgamating company i.e. Shanti Processing Ltd. was eligible for claiming u/s. 80IA or not in the first place. In view of the same, the claim of the assessee was disallowed. 24. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the claim of the assessee. Relevant part of the decision of the ld. CIT(A) is reproduced as under:- ....
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....ics and garment. The assessee has started the generation of energy in the previous year relevant to A.Y. 2006-07 and started claiming deduction u/s. 80IA(4) of the Act from assessment year 2009-10, which was first year of its claimed the same was allowed meaning thereby the A.O. was satisfied that the appellant had fulfilled all the conditions. As stated above, the plant & machinery valuing Rs. 7,11,23,416/- were installed in the factory of erstwhile Shanti Processor Ltd. which was transferred to Chiripal Industries Ltd. on amalgamation by the order of Gujarat High Court. The power plant was originally installed by the erstwhile owner during financial year 2005-06. The original cost of the said plant which included coal handling system, boilers, steam turbine and electrical fittings was of Rs. 7,11,23,416/-. This value represents the cost to the previous owner mainly incurred during FY 2004-05 the installation of which was during FY 2005-06. As per the provisions of section 80IA(12) when any undertaking of an Indian Company which is entitled to deduction under this section is transferred before the expiry of the period specified in this section to another Indian Company then as per....
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....ases. Further, a machinery does not become old on transfer vide order of high court as the existing company gets merged with the new company and the existence of the existing company is no more. The A.O. has not brought on record evidence to substantiate his argument by showing that particulars machinery was purchased by Shanti processor Ltd which was already used. Therefore, new machinery ' purchased by Shanti Processors Ltd cannot be termed as old machinery since due to scheme of amalgamation; appellant is legally entitled to claim deduction. Therefore, on amalgamation, the appellant became entitled to all the benefits which were available to the amalgamating company namely Shanti Processors Ltd. It is also noted that similar claim was made by the appellant in the assessment year 2009-10, which was first year of its claim and the same was allowed meaning thereby the A.O. was satisfied that the appellant had fulfilled all the conditions. There is no change in facts and therefore, it is not proper to again revisit the eligibility of claim more so when there is no change in facts. The decision relied upon by the A.R. in the cases of Dynemic Products Ltd as well as that of Income....
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....l Industries Ltd. as per approval of Registrar of Companies of Gujarat (A copy of both the orders are enclosed herewith for your honour's kind perusal and record purpose.) At this point, the assessee company would like to submit the definition of amalgamation , tax concessions available to amalgamated company and other provisions, for your honours kind perusal as under: A. Definition of amalgamation : According to section 2(1B) of the Income-tax Act, 1961 (hereinafter referred to as the Act), amalgamation in relation to companies means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that:- a. All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation. b. All the liabilities of the amalgamating company or companies immediately before the amalgamation bec....
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....they would have applied to the amalgamating Company if the amalgamation had not taken place and the provisions of subsection (12) would only apply if the amalgamating Company was eligible for claiming deduction u/s 80IA. It is demonstrated from the above facts and circumstances that the assessing officer has disallowed the claim of the assessee on presumption basis that addition of Rs. 71,12,34,167- was old plant and machinery without bringing on record evidence to substantiate that specified machinery was purchased by Shanti processor Ltd and the assessing officer has also failed to disproved the material fact that similar claim was allowed to the assessee in the assessment year 2009-10 on fulfilling of all the conditions. In the light of the above facts, legal findings and elaborated findings of the Ld.CIT(A) as supra in this order we do not find any error in the decision of the Ld.CIT(A),therefore the appeal of the revenue is dismissed. ITA No. 1425/Ahd/2016 filed by assessee 26. The assessee has raised following grounds of appeal:- "1. The Ld. CIT Appeals 1 Ahmedabad has erred in law and on facts in passing appellate order dated 29/03/2016 for A.Y. 2012-13 in ....
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....as the assessee has failed to substantiate that the said expenditure were incurred for the extension of its undertaking or in connection with setting up of new unit, we do not find any change in this facts during the year under consideration, therefore, the disallowance up to this amount is justified on the reason specified in the preceding year in the order of the Ld.CIT(A). Therefore, this ground of the assesse on this issue is partly allowed. Deemed rental Income of Rs. 1,68,000/- 28. This ground of appeal of the assessee is already adjudicated on the identical fact and identical issue in this order in ITA No. 833/Ahd/ therefore, we do not find any new fact and new evidences, therefore, this ground of the assesse is dismissed. ITA No. 1547/Ahd/2016 filed by revenue 29. The revenue has raised following grounds of appeal:- "a) That the ld.CIT(A) erred in law and on facts in deleting Rs. 28,97,950/- out of total addition ofRs. 29,13,282/- made on account of disallowance u/s 14A of the IT Act. . b) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 2,74,548/- made on account of disallowance of "Interest Expenses". c) ....
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....rview of 14A. The investment in shares was much lower than share capital and reserves & surplus. The appellant further submits that it had earned interest income of Rs. 10797443/- (including Bank interest Rs. 7656780/-) during the year and the same are reflected under Schedule "19" of Audited Financial Statement. Such interest income was required to be reduced while computing the interest expenses claimed by the appellant. Recently Hon'ble STAT Ahmedabad Bench "D" Ahmedabad in the case of !TO Vs. Karnavati Petrochem P. Ltd I.T. A. No. 2228/AHD/2012 has held that interest expenses should be netted against interest income. No nexus has been established by the AO between the expenditure incurred by the assessee and the tax free income earned by him (Trade (ITAT Kol) & Morgan Stanley (ITAT Mum). Reliance is also placed on OF INCOME TAX vs. CYCLES LTD. (2010) 233 CTR (P&H) 74 wherein interest paid was set off from interest income. The appellant further submits that during the course of assessment proceeding, it had clearly stated that, amount was invested out of own funds and non Interest bearing funds. Therefore, the appellant had not used the borrowed funds for making investments ....
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....2016 as supra in this odrer, therefore, we do not find any merit on the ground of appeal of the revenue as the disallowance was restricted to the extent of exempt income earned by the assessee After considering the detailed finding and judicial pronouncement as elaborated above, we do not find any merit in this ground of appeal of the revenue , therefore, the same is dismissed. Disallowance of interest expenses of Rs. 2,74,548/- 32. During the course of assessment proceedings, the assessing officer has disallowed a sum of Rs. 2,74,548 out of interest on the ground that assesse had given interest free advances totaling to Rs. 22,87,900/- to three parties on which no interest was charged. In this connection, we have noticed that assessee has explained that the advances were given in the ordinary course of business and the same was not in the nature of loan. In this connection, we have noticed that assessee was having interest free fund in the form of share capital and reserves and surplus to the amount of Rs. 233.93 crores and as the interest free fund enjoyed by the assessee were far in excess of the interest free fund made by the assessee, therefore, no disallowance u/s. 36(1....