AI Drafter 
TaxTMI 
TaxTMI 
2022 (6) TMI 597
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....ted in Circular No. 5/2014 dated 11/02/2014 that the disallowance u/s. 14A r.w.r 8D has to be made even when the tax payer on a particular year has not earned any exempted income. 3. On facts of the case, the Ld. CIT(A) is not justified in deleting the 14A addition made under Rule 8D when the AO has rightly made the disallowance after analyzing the investment portfolio and the balance sheet given by the assessee. 4. On facts of the case, the Ld. CIT(A) has erred in deleting the addition merely based on his predecessor order of relief by a random figure without any justification. 5. On facts of the case, the Ld. CIT(A) has erred in deleting the disallowance made u/s. 40A(2), whereas the assessee has failed to established in furnishing the supporting evidences that the legal and professional fee incurred wholly and exclusively for the purpose of the business of the assessee for which the onus was on the assessee. 6. On facts of the case, the Ld. CIT(A) has erred in deleting the disallowance e by AO u/s. 36(1)(iii) by merely relying on his predecessor order in the assessee's own case for 2010-11 without any justification. 7. For these a....
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....vestments Rs. 1,23,81,938 A.Y 10-11 A.Y 11-12 Average C. Average amount of tax exempt investments 313,11,29,080 501,38,60,089 407,24,94,585 D. Average amount of total assets 1088,63,64,371 1145,61,65,374 1117,12,64,873 E. Proportionate indirect interest to be disallowed B x C 1,23,81,938 x 407,24,94,585 D 1117,12,64,873 = Rs. 42,13,847 F. 0.5 % of average amount of tax exempt investments 61,910 G. Total disallowance attracted u/s. 14A read with Rule 8D A + E + F Rs. 42,75,757 5. Finally, the amount disallowed under section 14A is as follows: "5.6 This amount of Rs. 42,75,757/- i....
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....mporary working capital and not for making any investments. It was also submitted that except for allegation that interest expense on borrowings on the securities on fixed deposits were used for making investments that would yield exempt income, the AO has not brought out any evidence on record to show that the borrowed funds on the security of fixed deposits were in fact used for making investments that would yield tax free income. 8. The CIT(A) agreed with the submissions of the assessee that the assessee had sufficient interest free funds from and out of which it can be presumed that it made investments that would yield tax free exempt income. The CIT(A) therefore deleted the disallowance made by the AO at Rs. 42,13,847/- out of interest expenditure of Rs. 1,23,81,938/- under Sec. 14A read with Rule 8D(2)(ii) of the Rules The findings of the CIT(A) in this regard were as follows: "The assessee's contention in respect of the disallowance u/s.14A have been considered. The appellant is stated to be a registered NBFC, its main business activity being in the nature of money lending and investment in equities. It is seen that the assessee has earned interest in income ....
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....ssessee were more than the investments that would yield exempt income, the presumption is that investments that would yield exempt income were made out of own funds that are interest free and hence there cannot be any disallowance of interest expenditure under section 14A of the Act r.w.r. 8D(2)(ii) of the Rules. We are of the view that the CIT(A) has rightly come to the conclusion that the disallowance under section 14A of the Act r.w.r. 8D(2)(ii) of the Rules deserves to be deleted. We find no infirmity in the order of the CIT(A) and accordingly dismiss ground No. 3 raised by the Revenue. 10. As far as ground No. 4 raised by the Revenue is concerned, the fact are that the AO found that the assessee owned a aircraft and in respect of which the following expenses had been incurred by the assessee: Expenses related to aircraft owned Sl. No. Particulars Amount in Rs. 1 Depreciation 33,60,13,642 2 Interest to Bank (paid to Yes Bank) 3,12,19,593 3 Aircraft operating expenses 4,77,09,360 Total 41,49,42,595 11. The AO also found that the assessee earned revenue of only Rs. 2,24,38,333/- from hiring aircraft to third parties. ....
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....s preferred ground No. 4 before the Tribunal. 13. We have heard the rival submissions. We find that in assessee's own case for Assessment Year 2010-11, similar issue had arisen for consideration in ITA No. 1595/Bang/2013 and this Tribunal by order dated 13.12.2019 upheld similar order of the CIT(A). The following were the relevant observations of the Tribunal: "5. As per ground No. 3, this is a grievance of the Revenue that learned CIT(A) has erred in restricting the disallowance of the net Aircraft expenditure to Rs. 45.60 lakhs. On this issue also, learned DR for the Revenue supported the assessment order whereas learned AR of the assessee supported the order of the CIT(A). In this regard, it is noted by the learned CIT(A) in para No. 4.2 of his order that the assessee has incurred total expenditure on account of Aircraft of Rs. 2253,23,695/- including Rs. 2100,08,528 being depreciation, Rs. 38,95,273/- being interest and Rs. 114,19,894/- being expenses. From this total amount of expenses, an amount of Rs. 269,80,969/- has been reduced being Aircraft Hire Charges received and net expenditure of Rs. 1983,42,726/- was claimed by the assessee. This claim of the asses....
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....ly about 10% of the aircraft expenses in our view was just and fair. We find no ground to interfere in the order of the CIT(A) and accordingly dismiss ground No. 4 preferred by the Revenue. 15. As far as ground No. 5 raised by the Revenue is concerned, the facts are that the assessee paid legal and professional charges of Rs. 1,92,00,000/- and service tax of Rs. 11,22,700/- making a total payment of Rs. 2,03,22,700/- under the head legal and professional charges. The legal and professional charges were paid by the assessee to its holding company M/s. Vectra Holdings Pvt. Ltd., (VHPL) for providing management services. It is not in dispute that VHPL was a person falling within the ambit of 40A(2)(a) of the Act that he was a related person and therefore as per the aforesaid provisions, the assessee has to justify the payment made to a related party keeping in mind the nature of services provided and the price at which such services are generally available in open market between unrelated parties. The AO called upon the assessee to substantiate the payments made to VHPL and also the nature of services provided by VHPL. 16. The assessee pointed out that assessee had entered into ....
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....amalgamation and Rs. 11 lakh per month payable by ATHPL prior to the amalgamation. The CIT(A) was of the view that the services rendered by VHPL was one and the same under both the agreements and in the circumstances 2 payments to VHPL was not justifiable. The CIT(A) therefore was of the view that only a sum of Rs. 60 lakhs at Rs. 5 lakhs per month which was paid by the assessee prior to the merger was a reasonable payment and he sustained the disallowance only in respect of a sum of Rs. 1.32 Crores (Rs. 1.92 Crores - Rs. 60 lakhs). 19. Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal. Learned DR reiterated the stand of the AO. Learned Counsel for the assessee relied on the order of the CIT(A). 20. After considering the rival submissions, we are of the view that the AO gave no basis for disallowing the entire expense of Rs. 1.92 Crores claimed by the assessee as payment of management fee. As per the provisions of section 40A(2) of the Act, only payments which are excessive and unreasonable has to be disallowed. It is not disputed that services were rendered by the VHPL. In the circumstances, we are of the view that the approach adopted by the....
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....enditure alone and he disallowed indirect interest debited by the assessee for the year of Rs. 1,23,81,938/- u/s. 36(1)(iii) as pertaining to the acquisition of shares in the subsidiary companies and not related to the business of the assessee. He however noticed that the very same interest expenditure of Rs. 1,23,81,938/- was subject matter of disallowance u/s. 14A of the Act and a sum of Rs. 42,13,847/- out of the said sum was disallowed u/s. 14A of the Act, read with Rule 8D(2)(ii) of the Rules. The total sum disallowed u/s. 14A of the Act, i.e., under Rule 8D(2)(ii) & Rule 8D(2)(iii) of the Rules was Rs. 42,13,847 + Rs. 61,910 = Rs. 42,75,757/-. The balance amount of Rs. 81,06,181/- (Rs. 1,23,81,938 - Rs. 42,75,757) was disallowed further from being claimed as revenue expenditure for the year. This amount was added to the income returned by the assessee for the year, 23. On appeal by the assessee, the CIT(A) deleted the addition made by the AO with the following observations: "7.3. The AO, while making the disallowance of interest, u/s. 36(1)(iii) has done so primarily on the premise that, borrowed funds were utilized for payments towards share-application money. Th....
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....as placed reliance on the observations of the Supreme Court in the case of S.A. Builders Ltd. Vs. CIT 268 ITR I-(Supreme Court) and Punjab Steel Vs. CIT 324 ITR 396, wherein it has been held that, the primary test to be applied in such case would not be the source of funds but, the commercial expediency and business purpose. In the present case the AO has not made such a case. * It is further seen from the perusal of the Appellate-orders of my predecessor in the Assessment Year: 2010-11 that, disallowances made u/s. 36(1)(iii) stand deleted, in similar situation. In the facts and circumstances the disallowance of Rs. 81,06,181/- made u/s. 36(1)(iii) is deleted." 24. Aggrieved by the order of the CIT(A), the Revenue has raised ground No. 6. The learned DR relied on the order of the AO. The learned Counsel for the assessee relied on the order of the CIT(A). 25. We have already seen while deciding the issue under section 14A of the Act that interest expenditure of Rs. 1,23,81,938/- cannot be disallowed as interest paid on borrowings on the security on fixed deposit receipts were not used for the purpose of making investments that would yield tax free income bec....
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....essee filed return of income on 31.10.2007, declaring a loss of Rs. 44,00,286/-. The return was processed u/s. 143(1) of the Act on 20.2.2009. Thereafter an order of assessment u/s. 143(3) of the Act dated 30.12.2009 was passed by the AO making additions of Rs. 4,34,18,027/- to the income returned by the assessee and assessing the assessee at a total income of Rs. 3,90,17,741/-. Thereafter the AO issued a notice u/s. 148 of the Act, proposing the assess the assessee u/s. 147 of the Act, on income that has escaped assessment. The AO issued notice u/s. 148 of the Act dated 02.07.2012 after recording the following reasons:- "The assessee company, M/s. Jupiter Capital Private Limited filed its return of income for the assessment year 2007-08 on 31/10/2007, declaring loss of Rs. 44,00,286. The case was selected for scrutiny and an assessment order u/s. 143(3) was passed on 30/12/2009 by making additions of Rs. 4,34,18,027 and assessing the taxable income at Rs. 3,90,17,741. It has been learnt that, during the financial year 2005-06, a company by name M/s Vectra Holdings Pvt. Ltd(now called as. M/s Vectra consultancy Services Pvt. ltd.) had purchased 26,400 shares of M/s. Jupite....
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....the following consideration: Company No. of Shares Consideration Tayana Consult Pvt. Ltd 186800 Rs, 14,01,000 Coimbatore cable Net Pvt. Ltd 91700 Rs. 6,87,750 Larite Industries Ltd 2665 Rs.19,988 Nucent Technologies Ltd 3400 Rs.25,500 M/s. Epsilon Advisors Pvt. Ltd. also transferred its holding of 2,36,000 shares of Jupiter Capital Pvt. Ltd. to M/s. Vectra Consultancy Services Pvt. Ltd. apparently at a paltry sum. Thus, M/s. Vectra Consultancy Services Pvt. Ltd. became the owner of 99.91% of the share, i.e., 5,46,965 shares of M/s. Jupiter Capital Pvt. Ltd. Based on the above, it is seen that, during F.Y. 2005-06, substantial amounts in crones were brought i....
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.... the Capital Reserve in the balance sheet and has been considered as a capital receipt. This amount has been earned by the company, even though there has never been any valuation of shares. It is noted that the share premium may not genuinely fall under the heading of capital receipt. This whole business transaction has not been disclosed by the assessee in its financial statements, audit report, notes to accounts or Form 3CD. Thus it is seen that the assessee company has failed to disclose fully and truly all the material facts necessary for assess than and has also understated its income. It is also noted that there has been a deliberate attempt on the part of the assessee to suppress the facts, with the intention of evading taxation on the income of Rs. 106,78,30,162. This is because the nature of the transaction has not been disclosed anywhere in its financial statements and the whole procedure, wherein related concerns have paid a huge share capital and share premium of Rs. 4990 (on unvalued shares) and then forfeited the same, seems to be with the ulterior motive of parking funds in the company. The assessee seems to have made use of a colorable device to pr....
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.... 02.07.2012 i.e. after the expiry of four years from the end of the relevant Assessment year i.e., AY 2007-08. The CIT(A) placed reliance of Hon'ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. vs. CIT (2002) 125 Taxman 775 (Delhi) and on the decision of the ITAT Ahmedabad Bench in the case of C.D. Singh v. ITO (2010) 129 TTJ (Ahd 'D-Trib) 495. The CIT(A) firstly noticed that the reasons recorded by the AO before initiating proceedings u/s. 147 of the Act, were on facts which were already on record when the original proceedings u/s. 143 were completed by the AO. He found that existence of tangible material, for the formation of opinion for escapement of income, after the conclusion of Assessment proceedings, is a prerequisite for initiation of action under section 147 of the Act. Since the reopening of assessment was based on facts already on record of the AO, he held that initiation of reassessment proceedings was invalid. Although, the reopening of assessment u/s. 147 and issue of notice u/s. 148 of the Act was considered as invalid by the CIT(A), he however, proceeded the decide the various grounds of appeal raised by the assessee on merits as well for....
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.... Society Vs. CIT 119 ITR 996 (SC) wherein it was held that an error discovered on a reconsideration of the same material (and no more) does not give him that power. The aforesaid view on the above proposition has been reiterated by the Apex Court in A.L.A. Firm vs. CIT 183 ITR 285. Thus, reopening has held to be invalid on this ground also. The Full Bench of the Hon'ble Karnataka High Court in the case of Dell India Pvt. Ltd. Vs. JCIT 382 ITR 310 (Karn) reiterated the law laid down by the Hon'ble Supreme Court in the case of Kelvinator India Ltd., (supra). The law is thus very clear that an assessment completed under section 143(3) of the Act can be reopened only on the basis of existence of tangible material coming into income possession of the AO after conclusion of such assessment proceedings. On the basis of the very same material available at the time of conclusion of the proceedings under section 143(3) of the Act, the AO cannot be allowed to review his own order. The decision of the Hon'ble Supreme Court in the case of Kelvinator India Ltd. (supra) is directly on the point. The principle laid down by the Hon'ble Supreme Court has again been reiterated by the ....