TaxTMI 
TaxTMI 
2017 (10) TMI 1624
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....st income of Rs. 3,89,65,319/- under the head "income from other sources" instead of business income. 3. The Assessing Officer has erred in making addition of Rs. 3,65,00,326/-in respect of provision for income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd. while computing normal income under the Act as well as computing book profit u/s. 115JB of the Act. 4. The Assessing Officer has erred in disallowing Rs.43,39,710/-, being depreciation claimed on the major overhauling expenditure capitalized in A.Y. 2003-04. 5. The Assessing Officer has erred in disallowing Rs.6,53,14,500/- u/s. 14A of the Act read with Rule 8D while computing normal income under the Act and adding the same while determining book profit u/s. 115JB of the Act. 6. The Assessing Officer has erred in disallowing Rs.3,04,65,754/-, being interest expenditure claimed under section 36(l)(iii) of the Act. 7. The learned Assessing Officer has erred in initiating penalty proceedings under section 271(l)(c) of the Act. 3. The ld. Counsel of the assessee has submitted an additional ground also which reads as under: 1. The order passed by the Assess....
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....t depicting the chronology of the events as under: Sr. No. Date Particulars 1. 02.01.2014 Order passed by the Hon'ble DRP dated 31.12.2013 received by Assessing Officer. The Assessing Officer had time to pass consequential order till 28.02.2014 as per s. 144C(13) r.w.s. 143(3) of the Act 2. 29.01.2014 Order of the Hon'ble Bombay High Court directing the Assessing Officer not to pass the final assessment order till disposal of Writ petition. The Assessing Officer had a further time of 30 days to pass the consequential order as per s. 144C(13) r.w.s. 143(3) of the Act. 3. 18.11.2014 Order of the Hon'ble Bombay High Court directing the Assessing Officer to pass the final assessment order after deleting the transfer pricing adjustment on issue of equity shares. 4. 18.12.2014 Time limit for passing order u/s. 144C(13) r.w.s 143(3) of the Act expired being 30 days from 18.11.2014 5. 16.01.2015 Order passed u/s. 144C(13) r.w.s. 143(3) of the Act by the Assessing Officer. 6. In this connection, the ld. Counsel of the assessee relies on the case laws as under: 1. Honda Trading Corporation vs. Dy. CIT in ITA No.1132/De....
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....of any court in a proceeding otherwise than by way of appeal or reference under this Act, on or before the expiry of twelve months from the end of the month in which such order is received or passed by the Principal Commissioner or Commissioner, as the case may be; or (ii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147, on or before the expiry of twelve months from the end of the month in which the assessment order in the case of the firm is passed. 10. Now in this case, it is the contention of the ld. Counsel of the assessee that the original direction of DRP was dated 30.12.2013. As per section 144C(13), the A.O. had one month from the end of the month in which such direction was received to pass the order. However, the Hon'ble Bombay High Court on 29.01.2014 directed the A.O. not to pass the final assessment order. On 18.11.2014, the Hon'ble Bombay High Court directed the A.O. to pass the final assessment order after deleting the transfer pricing adjustment. Now it is the contention of the assessee that period of one month as mandated u/s. 144C(13) commenced from ....
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.... There is no charge in the Act to tax amounts received and/or arising on account of issue of shares by an Indian entity to a non- resident entity in Sections 4,5,15,22,28,45 and 56 of the Act. This is as it arises out of Capital Accounts transaction and, therefore, is not income; (iv) Chapter X of the Act does not contain any charging provision but is a machinery provision to arrive at ALP of a transaction between Associated Enterprises; and (v) Chapter X of the Act does not change the character of the receipts but only permits re-quantification of income uninfluenced by the relationship between the Associated Enterprises". 5) Mr, Tejveer Singh, learned Counsel appearing for the Revenue very fairly states that the issue arising in the present petition stands covered in favour of the petitioner by the decision of this Court in Vodafone-IV. 6) This Court by an order dated 29 January 2014 had restrained the Assessing Officer from acting further in pursuance of the impugned order dated 31 December 2013 passed by the DRP. The above stay continues till today. Thus, no final assessment order has been passed till date. 7) In view of the above, t....
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....h Court, wherein the direction of the ld. Dispute Resolution Panel has been modified. Hence, the Assessing Officer has to pass the order under direction of ld. Dispute Resolution Panel upon which the Hon'ble High Court has passed as order. Hence, this is clearly a case wherein the provisions of section 153(6) come into play. As already found hereinabove, the assessment order passed by the Assessing Officer is well within the time limit mandated as per section 153(6) of the Act. Hence, the additional ground raised by the assessee stands dismissed. 14. The ld. counsel of the assessee relies upon the decision of ITAT Delhi Bench decision in the case of Honda Trading Corporation (supra) and Mahindra & Mahindra Ltd. vs. DCIT 30 SOT 374. Both are not applicable on the facts of the case. In those cases, there was no order from the Hon'ble High Court with reference to which the time limit was to be computed. Hence, this case is distinguishable from these two decisions. 15. On merits of the issues raised in this appeal, the ld. Counsel of the assessee has submitted that majority of the issues raised are already covered except the ground relating to disallowances of interest expenditur....
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.... 43 16. Now we proceed with the adjudication of the issues on merits. 17. Ground no. 1: This is a general ground. 18. Ground no. 2 relating to interest income. The detail of the breakup of the interest in this case is as under: Gr. No. Issue Amount (Rs.) 2 i) loan given to employees ii) margin deposits iii) interest on ICDs iv) Interest on Fixed deposits 1,078 1,78,86,221 77,10,958 1,33,67,062 As per the above chart submitted by the learned counsel of the assessee, the interest mentioned in item number (i) and (ii) are covered in favour of the assessee by the decision of the tribunal in assessee's own case mentioned above. 19. The ld. DR did not dispute this proposition. Accordingly, we hold that respectfully following the precedent in assessee's own case, these interest incomes mentioned in item number (i) and (ii) above should be treated as income from business. 20. As regards the interest on ICDs and interest on fixed deposits, the ld. Counsel of the assessee fairly conceded that these should be treated as income from other sources. Accordingly, we uphold the order's ....
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....sel further submitted that since the purpose of the investment is to obtain controlling stake in the subsidiary group company, no disallowance u/s. 14A should be done. For this proposition, the ld. Counsel placed reliance upon several case laws. 24. Upon careful consideration, we find that it has been held by Hon'ble Delhi High Court as well as Hon'ble jurisdictional High Court that no disallowance u/s. 14A is required when the assessee has not earned any exempt income. We may gainfully refer to the decision of Hon'ble jurisdictional High Court in the case of a Ballarpur Industries Ltd. (supra) as under: By this income tax appeal, the appellant-Department challenges the orders of the Commissioner of Income Tax and the Income Tax Appellate Tribunal, Nagpur. On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" i....
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.... taken were utilized for repayment of principal portion of existing loans however, it was stated that the advance given for equity shares were sourced from amount received from assessee's holding company by issuance of shares of assessee. It was also contended that ICD was taken from VPCL after advance towards equity was infused into VPCL and there is no linkage between ICD taken and advance for equity given to VPCL. 10.3 The submissions made by the assessee as also the documents furnished in support of its contentions have been carefully examined. From the Bank summary furnished by the assessee, it is noticed that the assessee has given sums aggregating to Rs.59.75 Crore to VPCL on various dates. It is further noticed that the assessee has received ICD of Rs.50 Cr from VPCL on 27.06.2008. The Ledger account of Vadinar Company Ltd. (Advance Towards Equity shares) as appearing in the books of assessee is as under: Posting Date Text Amount Cumm. Balance ADVANCE TOWARDS EQUITY ISSUE OF SHARES Opening Balance 499.780,001.00 499,780,001.00 25.06.2008 VADINAR POWER CO.LIMITEDADV.AGST.EQUITY 110,000,000.00 6....
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....re from VPCL on 27.06.2008, the assessee has again given certain sums (Rs.1 Crore on 03.07.2008, Rs.5 Crore on 01.09.2008 & Rs.8,5 Crore on 17.09.2008) and subsequently on 29.09.2008, shares of Nos.75478000 were allotted to the assessee. Afterwards, the assessee has again given certain sums as advance for shares (Rs.1 Crore on 27.11.2008, Rs.16 Crore on 12.01.2009 and Rs. 1 Crore on 12.01.2009) for which shares of Nos.1.5 Cr were allotted on 12.01.2009. Similarly, sums of Rs.l.25 Crore, Rs.5.25 Crore & Rs.19.25 Crore were given on 19.03.2009 & 20.03.2009 which were shown as 'advance for equity shares' for which no allotment was made till 31.03.2009. No interest has been charged on the imputed sums, whereas the assessee is paying interest on the ICD. From an analysis of the entire gamut of facts and the flow of funds - inflow & outflow -it clearly transpires that the assessee has taken back its own money given to VPCL as 'advance for equity shares' under the garb of 'ICD' and paid an interest of Rs.3.04 Crore on the very same amount @ 8%. There is a direct nexus between the amount given by the assessee to VPCL in the form of 'ad....
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....een diverted for investment in the same company, VPCL which has charged interest on the imputed ICD, It has been held in the following case laws that primarily the onus is on the assessee to prove that interest claimed is deductible U/s.36(l)(iii (i) CIT vs. Coimbatore Salem Transport Pvt. Ltd. 61 ITR 480 (Mad.) (ii) Kishinchand Cheliaram vs. CIT 114 ITR 654 (Bom.) (iii) R. Dalmiya vs. CIT 133 ITR 169 (Del.) (iv) CIT vs. M.S.Venkateshwaran 222 ITR 163 (Mad.) (v) K.Somasundaram & Brothers vs. CIT 238 ITR 939 (Mad.) (vi) CIT vs. Motor General Finance Ltd. 254 ITR 449 (Del.) has confirmed in principle in Motor General Finance Ltd. vs. CU 267 ITR 381 (SC) 7 Further reliance is placed on CIT Vs. Coimbatore Sale Transport Pvt. Ltd. [61 ITR , 487 (Mad)] in which the court has held that it is for the assessee to prove that each of the loan on which interest is paid, was utilized for the purpose of business. Since the assessee has failed to prove the need to borrow funds from VPC and finally utilize its funds for purchase of shares of VPCL to whom it paid interest, therefore, the interest expense claimed by the assessee....
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....t the direct nexus to prove that investments in shares of VPCL is made out of its own funds, and also the utilization of the borrowed funds which the assessee failed to provide. The onus was on the assessee to prove with evidence and satisfy the assessing officer that interest bearing fund is not diverted for the non interest bearing or non income earning purpose, since deduction on account of interest was being claimed by it. Further, in the process of examination, it has been noted that the assessee has paid interest to its group company and has diverted funds in investments to the same company from where no income is earned. There would be very heavy onus on the assessee to be discharged before the Assessing Officer to show the nexus that borrowed funds was utilized for the purpose of business carried out during the year. In the absence of any evidence having been furnished, the contention of the assessee that borrowed funds were utilized for the purpose of its business cannot be accepted. Entire money in a business entity comes in a common kitty. The monies received as share capital, as term loan, as working capital loan, as sale proceeds etc. do not have any different colour. ....
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....has been produced before us. Further despite making a claim regarding commercial expediency no evidence has been placed to demonstrate or justify its claim. Hence, it is clear that the assessee has claimed expenditure u/s. 36(1)(iii) on loans borrowed without demonstrating that it was fully used for the purpose of business of the assessee. Hence we are of the view that the ratio of the decision of honourable ITAT in the case of Landmark Builders Private Limited in ITA No. 2937/Mum/2002, in principle, holding that the test of availability of interest free funds is not applicable unless it is demonstrated that the advance was made as a measure of commercial expediency is also applicable to the facts of the case. Accordingly, the action of the AO is upheld. 25. Against the above order, the assessee is in appeal before us. 26. We have heard both the Counsel and perused the records. The ld. Counsel of the assessee submitted that the assessee is a power company; it is making investments as a natural activity. He submitted that the assessee had adequate own funds to make advance for share issue, no borrowed funds were utilized for this. The ld. Counsel further submitted that he is s....
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....enditure u/s. 36(1)(iii) firstly, the capital should be borrowed and secondly, it should be for the purpose of business or profession. As the facts of this case detailed herein above clearly indicate that at the time of the said borrowal of fund of Rs.50 crores, the assessee already had given an advance free of interest of Rs.60 crores to VPCL towards equity share capital. As a matter of fact, the assessee gave further advances towards equity and equity shares were allotted only on 29.09.2008 which is more than three months from the said date of borrowal. Hence, it is crystal clear that as on the date of borrowal and upto 3 months thereafter, no equity shares had been allotted and the lender company was indebted to assessee for a sum of Rs.60 crores. Hence, it is clearly evident that this is not a case of capital borrowed but the assessee's own money given free of interest for advance for equity shares coming back as interest bearing inter corporate deposit. Hence, the assessee clearly fails the test of the amount having been borrowed, for allowance of interest under section 36(1)(iii). 30. The next issue is whether the amount borrowed was used for business purposes. In this reg....