TaxTMI 
TaxTMI 
2019 (8) TMI 1835
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.... failing to appreciate the decision of Supreme Court in the case of Lashmiratan Cotton Mills Co Ltd Vs CIT (1969) 73 ITR 634 (SC) wherein it was held that in order to claim that an expenditure falls under section 37(1) the burden of proving the necessary facts in that connection is on the assessee and the assesee has failed to dispose the basic onus to prove the nexus of the various expenses with its business had not been incurred by the assessee for the purpose of the business, and therefore could not be allowed as deduction u/s 37(1) of the Income tax Act 1961. d. For these and such other grounds as may be urged at the time of the hearing, the order of the Ld. Commissioner of Income tax (Appeals) may be vacated and that of the Assessing Officers be restored. e. The appellant craves leave to add, alter or amend any or all the grounds of appeal." ITA No.2175/PUN/2016 (By Assessee): 1. The ld. Commissioner of Income Tax (Appeals) erred in sustaining the addition of Rs.14,33,719/- made by the Assessing Officer on account of bank interest on deposits belonging to the Society. 2. The ld. Commissioner of Income Tax (Appeals) erred in sustaini....
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....estments on which no tax free income has been earned during the year should be excluded for the purposes of computing the disallowance u/s 14A r.w.r. 8D. 2.3] Without prejudice, in case, any disallowance of interest is warranted u/s 14A r.w.r. 8D, the same should be worked out by considering the net interest expenditure of Rs.21,46,46,009/- as against the interest expenditure considered by the A.O. of Rs.36,14,01,644/-." 3. Briefly stated the relevant facts include that the assessee is a promoter, builder and developer. The assessee filed the return of income declaring loss of Rs.16,22,73,675/-. At the end of the assessment, the Assessing Officer assessed the total income of the assessee at Rs.9,10,71,309/-. The details of computation of income as given in para 9 of the assessment order are extracted as under :- "9. Subject to the above remarks, the total income of the assessee is recomputed as under :- Particulars Amount (In Rs.) Amount (In Rs.) Total Income/(Loss) as per the Return of Income (16,22,73,675) Add: as per Para 3. Disallowance on account of ITS Mismatch 14,33,719 4. Disallowa....
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....e now stands covered by the decision of the Tribunal in assessee's own case for the earlier assessment year 2010-11 vide ITA No.39 & 46/PUN/2015 dated 31.10.2017; wherein, the Tribunal decided the issue against the assessee and in favour of the Revenue. The contents of para 13 of the said order of the Tribunal (supra) are relevant and the same are extracted as under :- "13. In ground No. 3 the assessee has assailed confirming the addition of Rs.10,13,878/- interest received on deposits belonging to the society. The ld. DR fairly admitted that this issue was decided by the Tribunal against the assessee in assessment year 2009-10. We observe that in assessment year 2009-10 the Co-ordinate Bench of the Tribunal dismissed this ground of appeal raised by the assessee by observing as under : "40. The Ld. Counsel for the assessee could not bring any material before us to show that assessee has infact handed over the money to the society. Since there is no evidence on record that any society has been formed and the assessee has transferred the money to the society or has shown any liability in its books and considering the fact that the assessee has claimed tax credit on ....
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....n the books. It is submitted that no shares were issued and the IPO was part of the existing business of the assessee. There was no fresh capital issued by the assessee. The assessee submits that the expenditure incurred on a project which has been abandoned is allowable as a revenue expenditure. It is submitted that the reliance is placed on the following decisions wherein it has been held that in case of aborted expenses, which may be capital in nature, the expenditure is allowable as a deduction u/s 37(1) - a. CIT v. Idea Cellular Ltd. [76 taxmann.com 77 com (Bom)] b. Binani Cement Ltd. v. CIT [60 Taxmann.com 384 (Cal)] c. Lawkim Ltd. v. JCIT [1 SOT 907 (Mum)] d. Tamilnadu Magnesite Ltd. [95 Taxmann.com 239 (Mad)]" 13. Thus, it is the case of the assessee that the claim of expenditure relating to the aborted project of going for Initial Public Offer (IPO) constitutes an allowable revenue expenditure. The said judgemental laws settle this issue in favour of the assessee. In these case, various projects, otherwise capital in nature were allowed as business expenditure of respective assessees. 14. In the light of the written submission disc....
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....inguished by the same High Court in the case of Tamilnadu Magnesite Ltd. vs. ACIT, 95 taxmann.com 239 (Mad) stating that the assessee contended that the expenses incurred in the implementation of the abandoned project under consideration had not brought any asset into existence. Further, it was submitted that the venture undertaken was not a new one, but, in fact one in the same line of business already being carried on by the assessee-company. Thus, the expenditure incurred on the same was to be allowed. Finding of the Tribunal - IPO expenses - An abandoned project. 17. We heard both the sides and perused the orders of the revenue authorities on this issue and legal proposition cited by both the parties. 18. It is an undisputed fact that the assessee decided to go for Initial Public Offering (IPO) right from the year 2009. The company filed the Draft Red Herring Prospectus and Red Herring Prospectus before SEBI and BSE in September, 2009 and May, 2010. In this regard, the board resolution was passed in 2011 to not pursue with the said public issue. Accordingly, by this time, the assessee incurred gross expenditure of Rs.3,66,34,133/-. The board resolution also speaks abou....
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....under :- Sl. No. Particulars Total Amount (Rs.) 1 Deposits in BSE and NSE 4,963,500.00 2 Processing Fee 12,471,197.00 3 Advertisement 19,199,436.38 Total 36,634,133.38 From the above, it is evident that the expenditure was not incurred on any fixed assets like land or building. 20. Further, we find that the Assessing Officer disallowed the same by observing as under :- "4. Disallowance on account of Exceptional Items: Assessee has debited an amount of Rs.3,66,34,133/- to the Profit & Loss Account under the head exception items. Further, in the notes to accounts, under Schedule 20-Note 3(o) it is stated as under: "Exceptional items in the Profit & Loss Account represents Rs.3,66,34,133/- incurred towards proposed Initial Public Offering" 4.1 Accordingly, vide order sheet note dated 10.03.2014, the assessee was requested to justify the said expenses and also contended as to why same shall not be disallowed. 4.2 In response, the assessee filed a write-up on 18.03.2014. no other documents justifying the expenses However, have been provided by the assessee. In absence of the relevant supporting....
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...., it is evident that the expenditure in connection with an abandoned project is an allowable expenditure. It is not the case of the Revenue, that assessee spent on capital assets like the land, building etc. The capital nature of the expenditure in question i.e. IPO expenses is not relevant when it comes to a case of abandoned project like the present one. Therefore, we are of the opinion, the ground no.2 raised by the assessee should be allowed. 24. Ground no.3 and additional ground no.1 & 1.1 relate to the correctness of invoking the provisions of section 2(22)(e) of the Act. 25. On this issue, the relevant facts include that during the year under consideration the assessee company received certain advances from its subsidiary companies viz. Riverview Properties Pvt. Ltd. and Khiranagar Development Pvt. Ltd. The assessee submitted the explanation for these advances. However, the Assessing Officer held that these advances squarely fall within the mischief of deemed dividend as per the provisions of section 2(22)(e) of the Act. Therefore, Assessing Officer disallowed the amount of Rs.2,38,60,653/- and added back to the total income of the assessee. 26. Before us, in this r....
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....al proposition that the "share premium" cannot be considered as part of accumulated reserves for the purpose of section 2(22)(e) of the Act as the said share premium is not entitled for the dividend distribution on account of the provisions of section 78 of the Companies Act. We proceed to extract relevant conclusions of the cited judgement of High Court of Calcutta and the Tribunal's order of Delhi & Chandigarh Benches as under :- (i) CIT vs. Shree Balaji Glass Manufacturing P. Ltd. [72 taxmann.com 118 (Cal)] : " Payment made by Pushpak Commercial Finance Pvt Ltd. to the assessee was within the mischief of Section 2(22)(e) because the payment has been held to have been made by Pushpak Commercial Financed Pvt Ltd in the ordinary course of its business of money lending which is substantial part of the business of the company." (ii) CIT vs. Mahesh Chandra Manti [61 taxmann.com 101 (Cal)] : "Before any payment can take character of dividend within meaning of provision, it had to be shown that there were accumulated profits lying with company which made payment" (iii) DCIT vs. MAIPO India Ltd. [24 SOT 42 (Delhi)] : "Amount representing....
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....y it in the return as well as enhanced by the A.O. is not justified since it had interest free funds much higher than the tax free investments. The details of tax free investments are given on pages 95 - 96 of the paper book. It is to be noted that the opening amount of tax free investments is Rs. 127.97 Crs. while closing balance is Rs.233.41 Crs. The average amount works out to Rs. 180.69 Crs. Now, the own capital and reserves are to tune of Rs.243.66 Crs. and total interest free funds available are to the tune of Rs.417.43 Crs. The relevant details are given on page 97 of the paper book. 4.4] Accordingly, since the interest free funds available with the assessee are much more than the tax free investments made by it, no disallowance of interest is warranted. Accordingly, it is submitted that the disallowance of interest made by the A.O. is not justified at all. Secondly, the interest disallowance offered by the assessee on its own in the return of income is also not warranted. The assessee submits that similar disallowance of interest u/s 14A r.w.r. 8D was offered by it in the return. The learned A.O. had enhanced the disallowance. The entire interest disallowance inclu....
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....ere is no dispute as regards the principle that no disallowance is to be made u/s. 14A where no tax free income has been earned from strategic investments. It is also a well settled principle that no disallowance can be made u/s. 14A where own interest free funds are much more than the investments. However, in the present case as we have pointed earlier, the assessee has earned tax free income from partnership firms. It is no one‟s case that investment has been made by utilizing borrowed funds. Therefore, provisions of Rule 8D(2)(ii) are not attracted. However, the provisions of Rule 8D(2)(iii) would apply in respect of tax free income earned from partnership firms. The facts in the present case are distinguishable from the facts in the immediately preceding assessment years. While deciding ground No. 2 we have upheld disallowance u/s. 14A in respect of investments made in partnership firms on which tax free income has been earned. The Assessing Officer is directed that after giving effect to ground No. 2, the balance disallowance, if any from suo-moto disallowance made by the assessee u/s. 14A be deleted. Accordingly, additional ground No. 1 raised in the appeal is partly al....
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....the disallowance which is the closing balance of the advances given at the year end. While the learned CIT(A) has considered the amount of Rs. 87.68 crs being the average amount of advances given. The assessee submits that the disallowance is not justified since it has interest free funds available much higher than the amounts considered by the lower authorities. The total interest free funds available are to the tune of Rs.417.43 Crs. and the details are given on page 97 of the paper book. Accordingly, since the interest free funds available with the assessee are much higher than the amounts advanced, no disallowance of interest can be made in view of the decision of Hon'ble Bombay H.C. in the case of Reliance Utilities and Power Ltd. [313 ITR 340]. It is also submitted that similar disallowance of interest was made for A.Ys. 2009 - 10 to 2010 - 11 and the same has been deleted by Hon'ble ITAT." 35. From the above, it is evident that the assessee has interest free funds amounting to Rs.417.43 crores against granting of interest free funds to the assessee's relatives relating to the source which is much less than the said interest free funds. Considering the same, the as....