TaxTMI 
TaxTMI 
2015 (4) TMI 1311
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.... the amount of Rs. 2,06,12,163/- without properly appreciating the facts of the case and the material brought on record by the A.O." 2.1 In Cross Objection No. 315/Ahd/2014 for A.Y. 2010-11, assessee has filed the Cross Objection on the following grounds: 1. The Learned CIT(A) erred in Law and on Facts in confirming the disallowance of Rs. 4,41, 963/- u/s. 14A without properly appreciating the Facts of the Case. 2. It is therefore prayed that, The Learned CIT ought to have deleted this disallowance of Rs. 4,41, 963/- also. 3. Assessing Officer made disallowance of interest u/s. 36(i)(iii) of Rs. 2,06,12,163/-. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee, who has allowed assessee's appeal by following ITAT, Ahmedabad 'B' Bench decision in ITA Nos. 414 to 417 & 1952/Ahd/2009 & 2461/Ahd/2010 dated 29.11.2013, wherein similar issue has been decided by ITAT by observing as under: ...9. We have heard the rival contentions and perused the material on record. The lessee has huge turnover during the years. It is true that there is a marginal increase in the borrowing from the specified persons either b....
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....tilization thereof. It is pertinent to be noted here that the Assessing Officer had not properly examined the case. He has disallowed the interest expenses which were far in excess than the interest paid to the relatives and family members of the partners of the firm. The appellant has raised new funds of Rs. 4,87,53,200/- against which AO has disallowed interest of Rs. 315,09,824/-. The AO at best ought to have disallowed interest on new loans. Having said that there is no denying the fact that the appellant cannot claim interest u/s 36(1)(iii) in respect of any borrowed funds unless he is able to establish a clear nexus between such borrowed funds and their immediate deployment / utilisation for the purpose of business. Perusal of the details of bank accounts filed by the appellant however indicate that there were occasions when the appellant was having its own funds and was not in need of any borrowings. Consequently, the appellant cannot be allowed interest on those borrowed funds which were obtained at a time when the appellant was having its own funds. Accordingly an effort was made to identify the factual position of the receipt of funds, interest paid upon it which was not ....
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.... Jaswanilal Parbhudas HUF UBI 08.10.2008 325000 174 21690 M/s. Parbhudas Kishordas UBI 25.10.200S 3500000 157 210767 jaswantiat Parbhudas HUF UBI 25.10.2008 400000 157 24088 7758200 Shree Arbuda Transport Company Corp Bank 27.11.2008 6000000 124 285370 Shree Jaylaxmi Transport Company Corp Bank 27.11.2008 4000000 124 190247 10000000 Bharatkumar P Patel Corp Bank 08.01.2009 70000 82 2202 70000 Prahladbhai Parbhudas HUF UBI 15.01.2009 900000 75 25890 900000 Jaswantlal Parbhudas UBI 1602.2009 950000 43 15668 HUF 950000 Pruhladbhai Parbhuiiaf HUF UBl 04.03.2009 550000 27 5696 Devaii g Jagdishbliai UBI 18.03.2009 200000 13 997 750000 Kalindiben ....
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....Court has, in assessee's own case an identical issue, decided by observing as under:- "10. Examining she facts of the present case in the light of the above decision, the Commissioner (Appeals) in his order has observed that there is no dispute that the assessee requires huge funds for the purpose of its business. For making purchases of bidi, the assessee has to make advance payments. The volume of purchases is Rs. 160 crores or more in one year. For this purpose the assessee has to borrow money from different persons. Since it is not certain as to exactly when such payment will be required to be made, and it may not be possible to secure such loans immediately when payment is required to be made, for smooth running of the business, the assessee has to borrow such funds in advance and keep the same ready at its disposal. Under the circumstances, instead of keeping such funds idle, the assessee parked the same in short term fixed deposits which in turn were used for making payment against purchase of bidis. Moreover, as noticed hereinabove, obtaining loans from banks is a cumbersome process and the interest rate is also high, hence, the assessee has obtained unsecured loans ....
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.... 4.1 Nothing contrary has been brought to our knowledge. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has allowed the appeal on the issue disallowance of interest of Rs. 2,06,12,163/- made by Assessing Officer u/s.36(1)(iii) of the Act. Same is upheld. 5. Assessee in Cross Objection has opposed the confirmation of disallowance of Rs. 4,41,963/- u/s.14A confirmed by CIT(A). Stand of assessee has been that CIT(A) confirmed the disallowance in question without properly appreciating the facts of the case. In this regard, learned Authorized Representative pointed out that similar issue arose in case of assessee in ITA Nos. 414 to 417 & 1952/Ahd/2009 & 2461/Ahd/2010 dated 29.11.2013, wherein Tribunal has decided the issue in favour of assessee by placing reliance on the order of Co-ordinate Bench in case of Chudgar Ranchodlal Jethalal being Income Tax Act No. 245/Ahd/2013 for the proposition that disallowance u/s. 14A r.w. Rule 8D though is mandatory from A.Y. 2008-09 under no circumstances, should exceed quantum of exempt income as held in Chudgar Ranchodlal Jethalal (supra) as under: 12. We have heard the rival....
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.... only to the extent of disallowing expenditure 'incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case." 13. Considering the totality of the facts and in view of the fact that the provisions of Rule 8D are applicable for the year under consideration and in the light of the aforesaid decision of Delhi High Court cited hereinabove and in view of the fact that the disallowance worked out by A.O. u/s.14A is more than the exempt income and considering the alternate submission of ld. A.R. to make a reasonable disallowance u/s.14A as deemed fit, we are of the view that disallowance of Rs. 5,000/- if made in the present case will meet the ends of justice. We thus direct accordingly." 5.1 In view of above, Assessing Officer is directed to restrict the disallowance u/s. 14A r.w. Rule 8D should not exceed quantum of exempt income. As far as disallowance of administrative expenses is concerned, in absence of details of investments made during the year, number of transactions in those investments etc, this issue needs to be re-looked by Assessing Officer. S....