TaxTMI 
TaxTMI 
2019 (2) TMI 1996
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....llate Tribunal, Mumbai (hereinafter called "the tribunal") in its appeal in ITA No. 7383/Mum/2016, read as under:- "1. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the disallowance of Rs. 2,28,396/- made by the Ld. A.O. u/s. 14A r/w. Rule 8D(2)(iii). The Ld. CIT(A) failed to appreciate, and ought to have held, that the disallowance U/S.14A r/w Rule 8D cannot be made in respect of the shares held by the appellant as stock-in-trade. Your appellant, therefore, prays that the disallowance of Rs. 2,28,396/- be deleted. 2. On the facts and in the circumstances of the case, and also in law, the Ld. C1T(A) erred in confirming the disallowance of Rs, 15,00,000/- made by the Ld. A.O. being professional fees paid for arranging loans borrowed by the appellant. Your appellant, therefore, prays that the disallowance of Rs. 15,00,000/- be deleted. 3. Your appellant craves leave to alter, modify, amend or delete any of the above grounds of appeal, or to add one or more new ground(s), at or before the hearing of the appeal, as may be necessary." 3. The grounds of appeal raised by Revenue in memo of appeal filed ....
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.... impugned assessment year which was claimed as an exempt income. The assessee has shown in its Balance Sheet inventories in Stock-in-trade of Rs. 4,12,15,574/- which was invested by the assessee in Equity Shares/Securities, Mutual Funds and Partnership Firms. It was claimed that since assessee is engaged in the business of trading in Shares and Securities, Investments and Finance activities, the assessee held some of these Equities/Securities as Stock-in-trade. The assessee had claimed that since shares are held as stock-in-trade as well Free Reserves were utilised for investing in these securities and no interest was payable with respect to investments made in these securities, no disallowance of expenditure incurred in relation to earning of an exempt income is warranted u/s 14A of the 1961 Act. The AO rejected the aforesaid contentions of the assessee and invoked provisions of Section 14A of the 1961 Act read with Rule 8D of the Income-tax Rules, 1962 and made the additions to the income of the assessee vide assessment order dated 09.03.2015 passed by the AO u/s 143(3) of the 1961 Act, as detailed hereunder:- 5. Aggrieved by an assessment framed by the AO u/s 143(3) of the 19....
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...., while Revenue is aggrieved by the deletion of additions of Rs. 79,52,228/- u/s. 14A of the 1961 Act r.w.r. 8D2(ii) of the 1962 Rules, hence cross appeals filed by assessee as well by Revenue. Thus, both the assessee as well Revenue have filed an appeal before the tribunal on this issue which is now before us. 6.2 The Ld. DR opened argument and submitted that the assessee has received dividend of Rs. 7.2 lakh which was claimed as an exempt income while no disallowance of expenditure incurred in relation to earning of an exempt income were made by the assessee voluntarily by invoking provision of section 14A of the 1961 Act. It was submitted that disallowance were made u/r. 8D(2)(ii) of the 1962 Rules r.w.s. 14A of the 1961 Act to the tune of Rs. 79.52 lakh by the AO, while disallowance u/r. 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act were made to the tune of Rs. 2.28 lakh by the AO. It was submitted that the disallowance of Rs. 79.52 lakh u/r. 8D(2)(ii) of the 1962 Rules read with Section 14A of the 1961 Act was deleted by Ld. CIT(A) by relying on the judgment of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. (2009) 313 IT....
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....ot disallowed any expenditure incurred for earning exempt income by invoking provisions of Section 14A of the 1961 Act voluntarily while filing return of income with the Revenue. 6.4. We have considered rival contentions and perused the material on record including cited case laws and orders of the authorities below. The assessee is engaged in the business of Trading in Shares & Securities, Investment & Finance activities. The assessee received dividend income of Rs. 7,20,212/- during the impugned assessment year which was claimed as an exempt income. The assessee has shown in its Balance Sheet Inventories being Stock-in-trade of Rs. 4,12,15,574/- consisting of investments in Equity Shares/Securities, Mutual Funds and Partnership Firm. We have observed from the perusal of audited financial statement for financial year 2011-12 that the assessee has made investments to the tune of Rs. 4.12 crores as at 31.03.2012, while the investments were in securities/shares of Rs. 5.01 crore as at 31.03.2011. We have observed that the assessee is claiming that the investments are made in Shares/Securities as Stock-in-trade and hence Section 14A of the 1961 Act is not applicable, as is discerni....
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....les can be made. We have also observed that the assessee has received dividend of Rs. 7,20,212/- which was claimed as an exempt income and admittedly these are mixed use funds which were utilised by the assessee for making investments in shares and securities which yielded exempt income and the Revenue has not brought on record any adverse/incriminating material to rebut the aforesaid presumption or to prove that that the assessee had borrowed interest bearing funds specifically to make investments in the shares and securities and hence relying on the decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited (supra) and HDFC Bank Limited(supra), disallowance of Rs. 79,52,228/- as was made by the AO u/s 14A of the 1961 Act r.w.r. 8D(2)(ii) of the 1962 Rules stood deleted. The assessee has also rightly relied upon another judgment of Hon'ble Bombay High Court in the case of HDFC Bank Limited v. DCIT reported in (2016) 383 ITR 529(Bom.). We have also observed that Hon'ble Supreme Court in the case of CIT v. Reliance Industries Limited reported in (2019) 102 taxman.com 52(SC),while deciding question number 1 raised by Revenue upheld the presumption that ....
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....t income of Rs. 7,20,212/- by way of dividend income which was claimed as an exempt income in the return of income filed with Revenue. It is admitted by the assessee that AO has recorded satisfaction while applying Rule 8D of the 1962 Rules read with Section 14A of the 1961 Act. Under these circumstances, disallowance of administrative expenses computed @ 0.5% of the average investments amounting to Rs. 2,28,396/- by invoking Section 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules cannot be faulted with, which we sustain/confirm by upholding the appellate order passed by learned CIT(A). The assessee fails on this issue. We order accordingly. 7. The next issue concerns itself with grant of interest free loan and advances by the assessee of Rs. 3.75 crores despite the fact the assessee borrowed interest bearing loans, as detailed here under:- (i) Vanraj Shah HUF : Rs. 75,00,000/- (ii) Gayatri Infra. & Dev. Pvt. Ltd. Rs. 1,00,00,000/- (iii) SERI Finance & Invt. Co. Pvt. Ltd Rs. 50,00,000/- (iv) Superior Financial Con. Ser. P. Ltd. : Rs.l,50,00,000/- Total : Rs. 3,75,00,000/- The AO was not satisfied with the contentions of the assess....
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....supra) to grant relief to the assessee. 7.4 On the other hand, the Ld. Counsel for the assessee reiterated its submissions as were advanced while arguing the issue of disallowance of interest expenditure made u/s. 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules. It was submitted by learned counsel for the assessee that the assessee is engaged in business of Trading in Share and Securities, Investment and Finance activities. Our attention was drawn to the audited Financial Statements for the financial year 2011-12 which are placed in paper book. It was submitted that the assessee's Share Capital as at 31.03.2012 was Rs. 4.3 crores while Reserves and Surplus were to the tune of Rs. 13.93 crores, aggregating to Rs. 18.23 crores. It was submitted that Investments in shares and securities held as stock-in-trade was only to the tune of Rs. 4.12 crores and interest free loans and advances granted by the assessee were to the tune of Rs. 3.75 crores. Since interest free funds available with the assessee were much higher than investments as well loans and advances taken together, presumption will apply that the assessee utilised its own interest free funds in making investm....
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....hat the assessee advanced interest free funds available with it for granting interest free loans and advances to the tune of Rs. 3.75 crores. We have observed from the audited financial statements for the financial year 2011-12 which is placed in paper book that the assessee's Share Capital as at 31.03.2012 was Rs. 4.3 crores while Reserves and Surplus were to the tune of Rs. 13.93 crores, aggregating to Rs. 18.23 crores as at 31.03.2012. The assessee has made investments in shares and securities held as stock-in-trade to the tune of Rs. 4.12 crores and interest free loans and advances granted were to the tune of Rs. 3.75 crores as at 31.03.2012, aggregating to Rs. 7.78 crores which is far in excess of interest free funds to the tune of Rs. 18.23 crores available with the assessee as at 31.3.2012. Similar was the position as at 31.03.2011, wherein interest free funds available with the assessee were much higher than the aggregate of investments in shares and securities as well interest free loans and advances. Since interest free funds available with the assessee were much higher than investments as well loans and advances as detailed above, presumption will apply that assessee uti....
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....ses a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question. *** ***" Thus, based on our detailed discussions as above, we hold this issue in favour of the assessee by upholding the appellate order of learned CIT(A), which we confirm/affirm and confirm deletion of interest expenses of Rs. 56,25,000/- as was made by learned CIT(A). The Revenue fails in this appeal. We order accordingly. 8. The next issue raised by assessee in its appeal concerns itself with disallowance of Rs. 15 lakh towards professional fees paid for arranging loans borrowed by the assessee. It was observed by the Assessing Officer that the assessee in its P&L account had claimed to have....
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....oceedings. Even during appellate stage the appellant could not produce any documentary evidences regarding professional services rendered by the above mentioned parties. This fact is properly recorded vide order sheet entry dated 14.09.2016. The appellant even could not furnish the evidences regarding deduction of tax on the payments made and any confirmation from the person who had rendered the professional services. Since the appellant had failed to prove the genuineness of professional services taken and necessary bills and vouchers issued by them, therefore claim of the appellant cannot be allowed. In view of it addition of Rs. 15,00,000/- made by the A.O. is confirmed and appeal of the appellant on this ground is dismissed." Thus, the Ld. CIT(A) dismissed the appeal of the assessee on the grounds that assessee could not prove genuineness of these expenses and also that the assessee could not produce evidence as to deduction of income-tax at source on these professional fees incurred by the assessee. 8.3. The assessee has come in an appeal before the tribunal on this issue. The Ld. Counsel for the assessee submitted that loans raised by the assessee were to the tune of Rs....
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....L and ILFS for the assessee. The expenses can be allowed as business expenses within mandate of Section 37(1) of the 1961 Act when it is incurred wholly and exclusively for the purposes of business of the assessee and it is neither a capital expenditure nor incurred for personal purposes. The Assessing Officer has also averred that these loans were sanctioned in the preceding year i.e. AY 2011-12 and hence these expenses cannot be allowed in the impugned assessment i.e AY 2012-13 being prior period expenses, Even before us, no evidences is produced to substantiate and justify genuineness of these expenses nor it is substantiated as to why these expenses be allowed in the current year while the loans were purportedly sanctioned in earlier years. The TDS certificates were also not produced before the authorities below and these TDS certificates are produced for the first time before us which have not stood the test of verification by lower authorities. In any case in our considered view merely production of TDS certificates is not sufficient justification to prove genuineness of the expense or to establish that the expenses were incurred wholly and exclusively for the purposes of the....