TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 1375
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.... not following the directions of Hon'ble ITAT in Appellant's own case for AY 2009-10 wherein the Hon'ble Tribunal has allowed deduction of interest on loan given to subsidiary under Section 36(1)(ii) of the Act and the same loan continued in the present year. Sufficient own funds available 3. erred in confirming action of the Ld. AO in disallowing notional interest of Rs. 48,84,000/- under section 36(1)(ii) of the Act on the ground that interest bearing funds were advanced to subsidiary company (i.e. SICOM Realty Pvt. Ltd) without charging any interest without appreciating that appellant had sufficient own funds, Commercial expediency for giving interest free advance 4. erred in not appreciating the fact that the appellant is in the business of project financing and advances were given to subsidiary which was wholly and exclusively for the purpose of business, thereby notional interest cannot be disallowed on such advances, II. Disallowance under section 14A of the Act in respect of dividend income exempt under section 10(34) of the Act 5. erred in confirming total disallowance of Rs. 15.94 Crore (consisting of interest expense of Rs. 15.03 crore and admin e....
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.... as under: On the facts and in the circumstances of the case, the Appellant wishes to raise the following additional ground of appeal which is independent of the other grounds of appeal Only those Investments from which exempt income earned should be considered for computing disallowance under section 14A 14. erred in considering the total investments instead of only those investments from which exempt income is eared during the year while computing disallowance under Section 14A of the Act read with Rule 8D(iii) of the Income Tax Rules, 1962, Disallowance under section 14A cannot exceed exempt income 15. Without prejudice to the grounds raised in original appeal and above grounds, the disallowance, if any upheld under Section 14A of the Act should be restricted to the amount of the exempt income earned by the Appellant during the year; Disallowance under section 14A should be restricted to 1% of administrative expenditure 16. Without prejudice to the grounds raised in original appeal and above grounds, the disallowance, any upheld under Section 14A of the Act should be restricted to 1% of administrative expenditure. 17. erred in not following judicial principle la....
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....lowance U/sec 14A r.w.r 8D(2)(ii)&(iii) of the IT Rules of Rs. 1594,82,826/- and after setoff of suo moto disallowance of Rs. 87,18,148/-, the balance amount of Rs. 1507,64,678/- was added to the income. Similarly, AO has made addition of disallowance U/sec 14A r.w.r 8D(2)(ii) & (iii) of the IT Rules in computing book profits u/sec 115 JB of the Act. (iii) the A.O found that the assessee has obtained interest bearing loans and interest expenditure was claimed in the profit and loss account. Whereas the assessee has disclosed interest free advance/loan of Rs,407,00,000/- in the financial statements to a in the name of subsidiary M/s. Sicom Reality Pvt Ltd. The A.O. is of view that the assessee on one hand has taken interest bearing loans and claiming interest expenditure and on the other hand has utilized the funds providing interest free advances/loans to its subsidiary and the A.O has issued show cause notice for the proportionate disallowance applying the market rate of interest@12% on Rs. 407,00,000/- and worked out the disallowance of Rs. 48,84,000/- dealt at Page 6 Para 6.3 of the order as under : "6.3. The assessee was asked to submit the show cause as to why proportionate ....
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....ue of stock in trade of Rs. 200.33 lacs claimed by the assessee has granted relief relying on the assessee own case at Page 8 Para 6 & 7 of the order as under: "6. The above detailed submission has been examined. Regarding the issue of claim of diminution in the value of stock in trade, there is a recent decision in the case of Ashok Leyland Finance Ltd versus DCIT 146 taxmann.com 340 (Madras High Court) (2023). In this case, there was a claim of deduction by this NBFC, of the diminution in the value of investment made in shares of two unlisted companies, which did not have a market value as they were not traded in stock market- were merely investments- and not in stock-in-trade, the same was disallowed - Held in favour of Revenue. Further, in this case of Ashok Leyland, it was also observed that government securities could not be easily encashed and can be utilized only when certain contingencies arise and thus, these also cannot be considered to be 'Circulating Capital' or 'Stock-in-trade'- Thus, not considered stock-in- trade. However, since in appellant's own case for AY 2009-10, the Hon'ble ITAT and for AY 2007-08, the Hon'ble High Court have ....
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.... methodology for computing the disallowance under section 14A. 10. Now, further latest amendments have been brought vide Finance Act, 2022 in Section 14A: 1st Amendment: In sub-section (1) of the said section to provide that notwithstanding anything to the contrary contained in this Act, for the purpose of computing the total income, no deduction shall be allowable in respect of expenditure incurred in relation to income which does not form part of the total income. The first amendment is with regard to insertion of non-obstante clause to Section 14A(1). Due to which, this sub- section would have overriding effect over any other provision containing contrary view as against this provision. 2nd Amendment: Inserted the Explanation to the said section to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of the said section shall apply and shall be deemed to have been always applied in a case where the income, not forming part of the total income, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation t....
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....llowance of Rs. 48,84,000/-. The CIT(A) has considered the detailed submissions of the assessee dealt at Page 21 to 28, Para 12 of the order. Whereas the CIT(A) was not satisfied with the explanations and information and confirmed the disallowance observing at Page 28 Para 13 &14 of the order as under: "13. The AO had been very reasonable, that despite appellant having failed to justify the interest free advances made to its sister concern, SICOM Realty Pvt Ltd (SRPL) engaged in the reality business, of Rs. 4.07 crore as against availing interest bearing loan from another sister concern, engaged in investment related business@ 14.50% per annum, he restricted the disallowance @ 12% only. The appellant contended that it gave loan to SRPL due to commercial expediency and for business purpose. The business of appellant is distinct and it is a NBFC and there was no necessity to route funds from M/s Sicom Investment and Finance Ltd via appellant, to yet another sister concern, M/s Sicom Realty Private Limited (SRPL) and debit heavy interest expenses @ 14.50% without proving any business purpose. Even, the land project of MMRDA mentioned by the appellant could not materialize subseque....
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....cial decisions and granted relief observing at Page 36 & 37 Para 20 & 21 of the order as under: "20 Ground 23: Addition to book profit under section 115JB of the Act on account of 14A of the Act of Rs. 15,07,64,678/- In this regard, the appellant submitted that; 1 "The learned AO has added back the disallowance under section 14A read with rule 8D, expenses of Rs. 15,07,64,678/- while computing the Book Profit u/s. 115JB of the Act. 2. In this regard, the Appellant submits that adjustment cannot be made in the book profit under section 115JB of the Act for the items which are not mentioned specifically in the explanation to section 115JB of the Act, relying on the decision of Apollo Tyres Ltd. Vs. CIT (255 ITR 273) (SC). 3. At the outset, the Appellant wishes to place reliance on the decision of Hon'ble Tribunal in Appellant's own case for AY 2012-13 in. ITA 1998/M/2017 dated 14 November 2018 wherein the Hon'ble Tribunal, relying on the Special Bench ruling in case ACIT vs Vireet Industries Pvt. Ltd. (188 TTJ 1) has been held that computation of adjusted book profit, provisions of sub-section (2) and (3) of section 14A cannot be imported into clause (f) of the ....
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.... 14A r.w.r 8D(2)(ii) & (iii) of the IT rules .The Ld.AR substantiated the submissions with synopsis, factual paper book and judicial decisions and prayed for allowing the appeal. Per contra, the Ld.DR supported the order of the Ld.CIT(A) on the disputed issues and submitted that the revenue has filed the cross appeal. 12. We have heard the rival submissions and perused the material on record. The Ld.AR submitted that the CIT(A) has erred in confirming the addition of notional interest overlooking the facts and submissions in the proceedings. Whereas the AO has estimated the deemed/ notional interest based on the market rate of interest charged. The Ld.AR relied on the judicial decisions in support of surplus funds availability and the investments/ funding is considered out of surplus funds. The contentions of the Ld. AR that the assessee has filed substantial information, evidences in support of claim. Whereas the interest free loan is provided from surplus funds/own funds available on commercial expediency and interest bearing funds are not utilized for providing advance and further in the assessee own case for the earlier year, the claim was allowed. The assessee is in the busin....
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....icial pronouncements that have been pressed into service by the ld. A. R to drive home his aforesaid contention. As is discernible from the orders of the lower authorities, the assessee company which is a NonBanking Finance Company (NBFC) engaged in the business of finance such as project finance, leasing, merchant banking, investments and trading in shares, financial services and advisory business, had during the year under consideration given an interest advance of Rs. 6.57 crores to its 100% subsidiary company viz. Sicom Realty Pvt. Ltd. (SRPL). Observing, that the assessee which had raised interest bearing funds had diverted the same to the aforesaid extent for giving of interest-free advance to SRPL, the CIT was of the view that the A.O while framing the assessment had erred in not disallowing the assessee's claim for deduction of the corresponding interest under Sec. 36(1)(ii) of the Act. Backed by his aforesaid conviction the CIT called upon the assessee to explain that as to why the order passed by the A.O u/s 143(3), dated 30.11.2011 being erroneous and prejudicial to the interest of the revenue on the aforesaid aspect be not setaside in exercise of the powers vested with ....
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....hout charging any interest was liable to be disallowed u/s 36(1)(iii) of the Act. We are of a strong conviction that the aforesaid view taken by the lower authorities is absolutely misconceived and in fact misplaced. In our considered view, if there be interest-free funds available with an assessee which are sufficient to meet its interest free investments; and at the same time the assessee had raised interest bearing loans, then, the presumption would be that the investments in question were made by the assessee from the interest-free funds so available with it. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom). In its aforesaid order the Hon'ble High Court had observed that in case if the assessee had advanced interest-free amounts out of its mixed funds i.e interest free and interest bearing funds lying in common pool, then, the presumption would be that the amount so advanced was from the interest-free funds available with the assessee company. For the sake of clarity the observation of the Hon'ble High Court is culled out as under: "10. If there be interest-free ....
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....ken by the lower authorities who had disallowed the assessee's claim for deduction of the interest expenditure under Section 36(1)(iii) of the Act, for the reason, that as the assessee was in receipt of interest bearing funds, therefore, it was to be presumed that the interest-free funds given by it to its subsidiary company, viz. SRPL were out of such interest bearing funds. We, thus, not finding favor with the view taken by the lower authorities set- aside the order passed by the CIT(A), to the extent he had upheld the disallowance of the assessee's claim for deduction of interest expenditure of Rs. 78,84,000/- u/s 36(1)(iii) of the Act. 9. Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations. 14. We find the facts in the present case, are similar and identical as discussed in the above judicial decision. Accordingly, we fallow the judicial precedence and set- aside the order of the CIT(A) on this disputed issue of charging notional interest and direct the Assessing officer to delete the addition and allow these grounds of appeal in favour of the assessee. 15. On the second disputed issue, that the CIT(A) has erred in sustaining the ....
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.... Appellant's own case for AY 2009-10 in (ITA No. 740/Mum/2013) dated 4 July 2019 * ACB India Ltd (ITA 615/2014) dated 24 March 2015 (Delhi HC) * Vireet Industries Pvt. Ltd. (188 TTJ 1) (Delhi ITAT SB) affirmed by Hon'ble Delhi High Court in (ITA No. 243 & 247/2018) (CM Appl No. 7362 & 7365/2018) * ITO vs Archway Investment Company Ltd (ITA. No. 3822/Mum/2018, ITA No. 6654/Mum/2017) dated 8 April 2021 * ACIT vs NIIT Technologies Ltd (2021) (123 taxmann.com 135) (Delhi ITAT) * Nadathur Estates Pvt Ltd vs ACIT (ITA Nos.267 & 268/Bang/2018) dated 3 May 2019 affirmed by Hon'ble Karnataka High Court in (ITA No.247 of 2020) dated 3 June 2021 (d) Disallowance under section 14A of the Act cannot exceed exempt income * * PCIT vs Caraf Builders & Constructions Pvt Ltd (2019) (101 taxmann.com 167) (Delhi HC) SLP/Dismissed rejected in (2019) (112 taxmann.com 322) (SC) * PCIT vs Ajit Phatarphekar (2020) (429 ITR 319) (Bombay HC) * ITO vs Moderate Leasing & Capital Services Ltd (ITA No. 2279/Del/2015) dated 31 January 2018 * Nadathur Estates Pvt Ltd vs ACIT (ITA Nos.267 & 268/Bang/2018) dated 3 May 2019 affirmed by Hon'ble Karnataka High Court in (ITA No.247....
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.... investment In shares resulting in tax free income. In the circumstances, I am of the opinion that the interest expenses need not be considered for the purpose of computing disallowance u/r 8D." 9. Further, the learned CIT(A) has mentioned in his order that during the year under consideration, the assessee has not invested its borrowed funds in respect of the shares which are held as investment. The learned CIT(A) has relied upon the judgment of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd, 313 ITR 340 (Bom.), wherein it was held that if there were funds available, both interest free and over draft and/or loans taken, then a presumption would arise that investment would be out of interest free funds generated, or available with the bank. Relying on this judgment of the Hon'ble Jurisdictional High Court, the learned CIT(A) has given a factual finding that the assessee had sufficient funds of its own to meet the investment and no borrowed funds were diverted for the purpose of making investment. This factual finding has not been rebutted before us by the learned Departmental Representative. Therefore, in view of the aforesaid decision of....
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....Trading Co. Pvt. Ltd (ITA no. 3724/Mum/2005 dated 20 July 2012). (Page No.305-320) 12. At Page 169 of the paper book filed by the assessee, a re-working has been given by the learned Counsel, indicating that if the disallowance is worked out keeping in view the above contentions, then the disallowance can be sustained only at 13,80,088. It is seen that though these contentions were not raised by the assessee before the authorities below, undisputedly, in many cases, these contentions have been accepted by the various Benches of the Tribunal. Therefore, respectfully following the cases laws cited above, we set aside the order passed by the learned CIT(A) and restore the issue to the file of the A.O. for verification of the facts as narrated by the learned Counsel and to then accordingly adjudicate this issue afresh. Needless to say that the assessee should also be given adequate opportunity of hearing to put forth all the details and evidences as may be considered appropriate by the assessee in support of its contentions. Thus, grounds no.1 to 6 are allowed for statistical purposes." 17. Subsequently, the Revenue has filed an appeal against the order of the Honble Tribunal for th....
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....s. The impugned order of the Tribunal upheld the reliance by the CIT(A) upon the decision of this Court in case of CIT v/s Reliance Utilities and Power Ltd., to delete the addition made by the Assessing Officer. This is in the above case, this Court held that where funds available are both interest-free and interest-bearing then presumption is that investment in shares would be out of interest-free funds. Thus, dismissed the revenue's appeal. 6. We find that on facts both the CIT (A) as well as Tribunal have rendered a concurrent finding that the investment made in shares which gave rise to exempt income was made out of its own funds and not out of borrowed funds i.e. interest bearing funds. In such a case this Court in CIT Vs. HDFC bank' has in identical circumstances held that the principle laid down in Reliance Utilities and Power Ltd. (supra) would equally apply while computing the disallowance under Section 14A of the Act. Thus, no fault can be found with the impugned order dated 5th August, 2015 of the Tribunal. 7. In the above view, the question as proposed does not give rise to any substantial question of law. Thus, no entertained." 18. Whereas on the issue of ....
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....lpha; No. 3329/Mum/2015) dated 03 March 2017 (Mum), Vireet Investments Pvt. Ltd. (50 CCH 145) (Del Trib) (SB), Tribunal order in appellant's own case (ITA No. 1349/Mum/2012) (AY 2008-09) dated 5 August 2015, Oriental Structure (ITA No. 605/2012) dated 15 January 2013 (Del HC), DCIT v. India Advantage Securities Ltd. (ITA No. 6711/Mum/2011 dated 14 September 2012) (Mumbai Tribunal) (Bom HC) dismissed the department appeal vide its order no. ITA 1131 of 2013 dated 17 March 2015), CCI Ltd. v. JCIT (2012) 250 CTR 291 (Kar HC), Ganjam Trading Co. Pvt. Ltd. (ITA No. 3724/Mum/2005 dated 20 July 2012), M/s Everest Kanto Cylinder Ltd. v. ACIT (ITA No. 7073/Mum/2012 dated 25 September 2014) (Mumbai Tribunal), Reliance Industrial Infrastructure Ltd. (ITA No. 69 & 70/Mum/2009) dated 5 April 2013 (Mumbai Tribunal). 4.2 On the other hand, the Ld. DR submits that in the case of Maxopp. Investment Ltd. v. CIT (2018) 91 taxmann.com 154 (SC), it is held that dominant purpose for which investment into shares is made by assessee may not be relevant as section 14A applies irrespective of whether shares are held to gain control or as stock-in-trade. 4.3 We have heard the rival submissions and pe....
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....articularly after confirming the disallowance of Rs. 15,07,64,678/- u/s. 14A, the Ld. CIT(A) is justified in deleting the addition of same disallowance to the Book profit uls. 115JB by relying on the decision of the Hon'ble Supreme Court in the case of PCIT vs. Atria Power Corporation Ltd. wherein the Hon'ble Supreme Court had only dismissed the SLP of the Department without going into merits of the issue? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT is justified in deleting the above addition to Book profit uls. 115JB by relying on the decision of Hon'ble Supreme Court in the case of PCIT vs. Atria Power Corporation Ltd. without appreciating that this decision was in the context of deciding the jurisdiction of PCIT to invoke the revision proceedings u/s. 263 on this issue which was debatable at that point of time 3. The appellant craves leave to add, amend and/ or vary the grounds of Appeal before or during the course of hearing 22. The Ld.DR submitted that the CIT(A) has erred in deleting addition of disallowance U/sec 14A of the Act, in computing book profits u/s. 115JB relying on dismissal of SLP of the Revenue by the Hon'ble Su....