TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1582
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.... as fuel predominantly. The assessee supplies the bagasse from its sugar factory to Tel, which is burnt in the boiler of M/s.Terra Energy Ltd.(TEL) to produce steam and the steam is in turn used to produce electricity. The assessee company has entered into a barter agreement with Terra Energy Ltd., whereby the assessee company shall supply bagasse from its sugar factory to TEL and TEL in return for the bagasse supplied shall supply to the assessee company necessary steam which shall not be less than 45% of the cane cruses and electricity which shall not be less than 30 units per tonne of cane curshed. The quantity of power and steam actually supplied is quantified by TEL and any power or steam supplied in excess of the aforesaid agreement is charged by TEL. 2.2. During the course of assessment proceedings, the AO made the addition of a sum of Rs. 11,03,84,378/-as the difference in the value of the bagasse, a by-product arising in the manufacture of sugar, supplied by the assessee to its subsidiary company TEL in exchange for the power and steam received by the assessee from the subsidiary company. The AO considered the market value of the bagassee supplied by the assessee to its s....
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.... sale of molasses by the assessee by comparing the price at which another company, Trichy Distilleries and Chemicals Limited has purchased the molasses. The AO found that the average rate at which the Molasses was sold by the assessee during the period from 1.4.2008 to 31.3.2009 was Rs. 1,618.62 per MT whereas the prevailing rate as per the purchases made by M/s.Trichy Distilleries and Chemicals Ltd., was Rs. 2,259/- per MT. Therefore, the AO added the difference to the total income of assessee which has resulted in the impugned addition Rs. 30,09,770/-. Aggrieved with the order of AO, the assessee carried the appeal before the Ld.CIT(A). 3.2. On appeal, the Ld.CIT(A) deleted the addition on the reason that the price depends upon quality or grade as well as on the demand and supply position. The AO has taken average rate of Rs. 1,680/- per MT, in respect of one customer namely M/s.Integrated Services P. Ltd. and compared the sale rate with that of M/s.Trichy Distilleries and Chemicals Ltd., at Rs. 2,259/- per MT. The assessee has filed details before the Ld.CIT(A) as per which Molasses has been purchased and sold at rates varying from Rs. 2,00/- MT to Rs. 4,700/- MT. It is also no....
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.... that during the course of assessment proceedings the AO found that the assessee has received a sum of Rs. 28,60,00,000/- from Shree Ambika Sugars Ltd, an associate company of the assessee in which the assessee is holding more than 10% of the equity share capital. During the year, the assessee purchased Rs. 76,56,610/- equity shares of Shree Ambika Sugars Ltd. (SASL) for total consideration of Rs. 30,70,30,061/-. The AO noted that the shares were bought by assessee out of borrowing from other corportes viz. M/s.Wardha Power Company Ltd. and Aarshree Investmetns Ltd. The AO further noted that assessee paid interest on the said borrowings and the loans were repaid during the year itself. The AO calculated the transactions with M/s.Wardha Power company Ltd and Aarshree Investments Ltd and interest of 97,98,082/- was paid to above companies which was disallowed. The AO further referred to the bank account details of the company and noted that except for an amount of Rs. 1,40,00,000/-, the entire repayment of ICDs obtained by the assessee from M/s.Wardha Power company Ltd and Aarshree investments Ltd had been made by the assessee out of amounts received from M/s.SASL. The AO found that ....
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.... which are common in nature and thus, there is unity of management and control between these two companies. Hence, provisions of the section 2(22)(e) of the Act cannot be applied to running account between the assessee and SASL, which is in the ordinary course of business transaction and deleted the addition made u/s.2(22)(e) of the Act. 7.1. Contrary to this, the ld.D.R submitted before us that even running account cannot go out of the provisions of the section 2(22)(e) of the Act. In our opinion, once the assessee has established that this is a running account between the parties on account of business transactions between the two parties, provisions of the section 2(22)(e) of the Act cannot be applied as held by the Jurisdictional High Court in the case of CIT Vs. Raj Kumar reported in 318 ITR 462(Mad.) wherein lordships after considering the judgement of Apex Court in the case of Tarulata Shyam (Smt.) Vs. CIT [1977] 108 ITR 345(SC) held as under:- "It is clear that sub-cl. (e) of s. 2(22), plainly seeks to bring within the tax net accumulated profits which are distributed by closely-held companies to its shareholders in the form of loans. The purpose being that persons who m....
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....ion of addition made on account of export sales to Agrocorp. 8.1 The facts of the issue are that the addition of Rs. 7,59,38,975/- was made by AO on account of export sales to M/s.Agrocorp. The AO found that assessee had made export sales in addition to levy sugar and free sale. After analyzing the details furnished by the assessee,the AO noted that from the said shipping documents on sugar shipped to M/s.Agrocorp from Tuticorin Port, the following discrepancies emerged. Invoice No./Date Date of export quantity in MT Value in USD Conversion rate Value in INR TASL-SUG/284 dt 3.5.08 22.5.08 10,000 495000 39.9 19,75,05,000 TASL-SUG/332 dt 6.6.08 30.7.08 1,700 561000 42.7 2,39,54,700 TASL-SUG/331 dt 6.6.08 30.7.08 3,150 1109500 42.7 4,73,75,650 TASL-SUG/330 dt 6.6.08 30.7.08 7,150 2339500 42.7 9,98,96,650 36,87,32,000 Then, AO added Rs. 7,59,38,975/- to the income of assessee on thereason that the difference between the sales made to Agrocorp as per dtails of export sales supplied by the assessee and the export day book and the bill of lading. Aggrieved with the order of AO, the assessee carried the appeal b....
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....e issue are related to disallowance of a sum of Rs. 5,48,15,816/- u/s.14A r.w.r.8D. In the course of assessment proceedings, the ld. Assessing Officer found that the investment Portfolio of the assessee as on 31.03.2009 stands at an aggregate value of 106,38,01,607/- out of which the assessee earned income which is not included in the total income and sec.14A(3) provides for the principles to be applied in such a situation. The AO then reproduced the provisions of the section 14A(2) and 14A(3) and held that the provisions of Rule 8D will apply in this case. Thereafter, the AO computed the disallowance of Rs. 5,48,15,816/- applying the second and third limbs of Rule 8D. Aggrieved with the order of ld. Assessing Officer, the assessee carried the appeal before the Ld.CIT(A). 9.2 On appeal, Ld.CIT(A) observed that assessee earned dividend income of Rs. 3,30,200/-during the assessment year under consideration from the investment portfolio of which aggregate value of Rs. 1,06,38,01,607/- and the investment in the assessment year in the shares of SASL at Rs. 30 lakhs. The AO applied the third limb of Rule 8D(2)(ii) and computed the disallowance of Rs. 5,48,15,816/-. According to the Ld.C....
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.... assessee's counsel. This issue has been considered elaborately by the Commissioner of Income Tax(Appeals) and deleted the interest on bank loan and term loans which were not utilized for making any investments having tax free income. While holding so, the Commissioner of Income Tax (Appeals) held as under:- "5.2.1 Having held that provisions of rule 0D are applicable, let us now examine whether the amount has been correctly quantified. The AO had calculated the disallowance at Rs. Nil, Rs. 1,04,38,000/- and Rs. 26,87,000/- under (i), (ii) & (iii) of rule 80 (2)respectively. There is no dispute regarding the first component, because it is Nil. With regard to the second component being the expenditure by way of interest which is not directly attributable to any particular income or receipt, the AO has determined the amount at Rs. 1,04,38,000/. The AO has taken into account the entire interest expenditure of Rs. .5,79,46,000/- for computing the above disallowance. The Id.AR, in his submission, has given the break-Up of interest which includes (1) interest on bank loans: Rs. 67,92,000/- (2) interest on term loans Rs. 3,82,11,000/- and (3) interest....
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....tion of disallowance under Rule 8D(2)(ii). 12. The decision of Calcutta Bench of this Tribunal in the case of Champion Commercial Co.Ltd. (supra) also supports the view of the Commissioner of Income Tax (Appeals). The Tribunal had considered a situation when the loans were utilized for the purchase of machineries, interest arising out of such loans, whether such interest is to be excluded for the purpose of computing disallowance under Rule 8D(2)(ii), the Tribunal held that such interest has to be excluded. While holding so, it has held as under:- "11. There is no dispute about working of this method so far as rule 8D(2)(i) and (iii) is concerned. It is only with regard to the computation under rule 8D(2)(ii) that the Assessing Officer and the CIT(A) have different approaches. This provision admittedly deals with a situation in which " the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt" . Clearly, therefore, this sub clause seeks to allocate 'common interest expenses' to taxable income and tax exempt income. In other words, going by the plain wordings of rule 8D(2)(ii) what is ....
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.... rule 8 D(2)(ii) will be Rs. 18,000 whereas entire common interest expenditure will only be Rs. 10,000/-. 13. The incongruity arises because, as the wordings of rule 8D(2)(ii) exist, out of total interest expenses, interest expenses directly relatable to tax exempt income are excluded, interest expenses directly relatable to taxable income, even if any, are not excluded. 14. The question then arises whether we can tinker with the formula prescribed under rule 8D(2)(ii) of the Income Tax Rules, or construe it any other manner other than what is supported by plain words of the rule 8 D (2)(ii). 15. We find that notwithstanding the rigid words of Rule 8D(2)(ii), the stand taken by the revenue authorities about its application, as was before Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT (328 ITR 81) when constitutional validity of rule 8 D was in challenge, is that " It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or re....
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....of Godrej and Boyce (supra), "amount of expenditure by way of interest that will be taken (as 'A' in the formula) will exclude any expenditure by way of interest which is directly attributable to any particular income or receipt (for example-any aspect of the assessee's business such as plant/machinery etc.)". Accordingly, even by revenue's own admission, interest expenses directly attributable to tax exempt income as also directly attributable to taxable income, are required to be excluded from computation of common interest expenses to be allocated under rule 8D(2)(ii). 17. To the above extent, therefore, we have to proceed on the basis that rigour of rule 8 D (2)(ii) is relaxed in actual implementation, and revenue authorities, having taken that stand when constitutional validity of rule 8 D was in challenge before Hon'ble High Court, cannot now decline the same. Ideally, it is for the Central Board of Direct Taxes to make the position clear one way or the other either by initiating suitable amendment to rule 8D(2)(ii) or by adopting an interpretation as per plain words of the said rule, but even on the face of things as they are at present , in our humble understa....
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....estment made by the assessee in the share capital and mutual funds. In the absence of any nexus, the presumption is that the assessee has invested the available interest-free funds in share capital and mutual funds. Furthermore, making investment in sister concerns is for commercial expediency in view of the judgment of Apex Court in S.A. Builders Ltd. v. CIT (2007) 288 ITR 1. It is not the case of the Revenue that the sister concern or any of the Directors has misused the funds invested by the assessee. When the sister concern uses the funds only for business purpose, there was commercial expediency for making investment. Therefore, this Tribunal is of the considered opinion that there cannot be any disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962. 13. In view of the above, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside. The entire addition made by the Assessing Officer is deleted." 10.1 We also rely in the case of Beach Miners Co. Pvt Ltd. Vs. ACIT in ITA No.2110/Mds./14 dated 06.08.15 wherein held that: "6.1. Ground No.3 - Disallowance of expenditu....