TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 1982
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....enue has raised the following ground : - ""(i) On facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 5,85,45,509/-made on account of difference in the rate of interest paid on borrowing and the interest charged on Short Term lending to only subsidiary companies without appreciating the fact that the assessee was free to explain the business prudence for such transactions during the course of assessment proceeding." 3. At the outset, the learned Counsel for the assessee took us through the facts of the case from assessment order that the assessee in the preceding years has received loan from Lehman Brothers which has been utilized for giving loans to its subsidiaries and associated companies. According to AO, the rate of interest charged is lower than the interest paid to layman brothers and hence, according to him, the differential interest charged as expense is to be disallowed and added to the returned income of the assessee. The learned counsel for the assessee stated that the AO has relied on the decision of earlier year i.e. AY 2010-11 and for this he observed in Para 5.2 as under: - "'5.2 The aforesaid submissions ....
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....SA Builders (SC), the interest expenditure cannot be disallowed. Furthermore, the judicial pronouncements by Hon'ble Supreme Court in case of Hero Cycles and other decisions of Mumbai Tribunal as stated above supports that no disallowance of interest can be made merely because advance was given at a lower rate of interest or without charging any interest to the wholly owned subsidiaries. In the instant case before us, advance was given to the wholly owned subsidiaries at an interest rate of 9%. Following the proposition of law laid down in the above judicial pronouncements, we do not find any infirmity in the order of ClT(A) for deleting the disallowance of interest so made by the AO.." 5. The learned Counsel for the assessee also narrated the fact that in this year interest charged from subsidiary is at the rate of 6% as against 9% in earlier years and also received funds from Lehman Brothers at the rate of 12 % as against at the rate of 13.5% in earlier year. When the above order was confronted to the learned CIT DR, Shri R Manjunatha Swamy, he only relied on the assessment order. 6. After hearing both the sides and going through the orders of the lower authorities a....
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.... method as prescribed in view of the provisions of sub-section (2). Therefore, since from assessment year 200809, Rule 8D is applicable, the AO shall be free to compute the disallowable expenditure in respect to the exempt income in all such cases, where he is not so satisfied, in an objective manner. It is seen that the appellant has a large portfolio; the average tax free investment held by the Appellant is Rs. 1,147.94 Crores. Against this investment in tax free securities, the appellant has only made a disallowance of Rs. 5,72,183/- which obviously is inadequate. Although the appellant has given a number of arguments based on the facts of its case, still, inspite of that due to detailed reasons given by AO in the assessment order on pages 6 to 20, it cannot be accepted that the suo moto disallowance offered by the appellant at Rs. 5,72,183/- was adequate. Hence, the AO was justified in computing the disallowance tinder Rule 8D r.w.s. 14A of the Act. The latest decision available on this issue is the judgment of Hon'ble high court in the case of Godrej and Boyce Manufacturing company Ltd [328 ITR 81] wherein the Hon'ble court has held that the dividend income and inc....
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....ce as per Rule 8D(ii) is warranted. The disallowance of interest expenditure of Rs. 19,29,14,802/- is directed to be deleted. The balance disallowance made by the AC at Rs. 5,68,25,023/- (i.e. additional disallowance of Rs. 5,73,97,206/- after excluding the suo moto disallowance made by the appellant is upheld. Thus this ground of appeal is partly allowed." 9. The learned Counsel for the assessee stated that even the Tribunal deleted the similar addition in ITA No. 668/Mum/2011 for the AY 2008-09 vide order dated 14.03.2018 by observing in Para 18,19,20 as under: - "18. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case. From the record we found that own funds of the assessee i.e., share capital and reserves at the end of the year is Rs. 13,49,75,79,368/- however, against this own fund assessee made investment of Rs. 10,59,23,39,574/-. Thus, there was extra own funds of Rs. 2,90,52,39,794/-.....
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....utable to earning of taxable income only. Assessee's Ground 2. The CIT(A) ought to have directed the AO to delete the addition of disallowance u/s 14A of the Act r.w. Rule 8D of the Rules to the book profit computed as per section 11 5JB of the Act." 12. At the outset, the learned Counsel for the assessee stated that this issue is covered in favour of assessee and against Revenue by the decision of Special Bench of this Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR (AT) 313 (Delhi - Trib.) (SB) wherein the Tribunal has clearly held that no disallowance under section 14A of the Act r.w.r 8D of the Rules can be made while computing book profit under section 115JB of the Act. The learned Sr. DR could not controvert the above proposition. Accordingly, we are of the view that this issue is covered by the special bench decision of this Tribunal in the case of Vireet Investments (P.) Ltd. (supra). Respectfully following the same, we delete the disallowance and allow this issue of assessee's appeal. This issue of Revenue's appeal is dismissed and that CO of the assessee is allowed. 13. One more issue in this Cross Objection of the assessee is as regards ....