TaxTMI 
TaxTMI 
2022 (10) TMI 1312
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....en at arms length rate of interest 2. The learned AO and CIT(A) erred in considering the loans as interest free loans when in fact the Appellant has received an interest of Rs. 25.69 crores on such loans which has been credited to profit and loss account and AO himself has referred to this amount while reducing it from the proposed adjustment. 3. The learned AO and CIT(A) has erred in disregarding submissions made wherein party wise details of loans taken, Inter Corporate Deposits (ICDs) given, etc. along with rate of interest charged and paid has been submitted. The Appellant prays that the adjustment made by the learned AO and upheld by the learned CIT(A) in respect of partial disallowance of interest expense claimed in excess of interest income earned on ICDs be deleted. Disallowance under section 14A r.w.r. 8D - Rs 18.50 crore 4. The learned AO and CIT(A) erred in disallowing 0.5 percent on entire investment as administrative expense without appreciating the fact that Appellant has not earned any exempt income during the year from the said investments. 5. The learned AO and CIT(A) erred in making an adhoc disallowance under ....
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.... the absence of an opportunity for personal 11. The learned CIT(A) erred in passing the order without providing an Opportunity of personal hearing, though requested by the Appellant. The Appellant prays that the order being passed in violation of principles of natural justice and against the provisions of Income Tax Act, 1961 is bad in law and should be quashed. The Appellant craves leave to add to, alter, amend or withdraw all or any of the grounds of appeal herein above and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law." 3. In respect of the Ground nos. 1 to 3 (supra), the AO during assessment proceedings had noted that he had issued notice u/s 142(1) of the Act on 11.10.2018 and in response the assessee filed its submissions on 05.12.2018, 13.12.2018 & 25.12.2018 (refer PB) and the following facts are discerned. That during the year, the assessee company had an integrated oil terminal at Vadinar in Jamnagar, a product berth crude oil tanks, refined petroleum product and intermediate tanks. The assessee had filed return of Income on 30.11.2015 declaring total l....
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....also not submitted the statement of loans/advances as called for. The onus of proving that the borrowed money had not been utilised for non business purpose was on the assessee. The Madras High Court decision in the case of CIT Vs Coimbatore Salem Transport Pvt. Ltd. (61 ITR 480,487) may be referred to in this regard. Further, the Madras High Court in the case of Mir Mohammad Ali (38 ITR 413,418) held that it is for the assessee to prove that each of the loans on which he paid the interest was utilised for the purpose of his business. The said decision has been affirmed by the Supreme Court in the case reported 52 ITR 165. The Delhi High Court decision in the case of R Dalmia Vs. CIT (133 ITR 169) and the Orissa High Court decision in the case of Indian Metals and Ferro Alloys Ltd. vs. CIT (193 ITR 344) also support the above proposition. In this connection, reliance is also placed on the judgement of Bombay High Court in the case of Phalton Sugar Works Limited Vs CIT 208 ITR 989 the operative part of the said judgement is reproduced as under: "Section 36(1) (iii) of the Income-tax Act, 1961, provides for deduction for payment of interest only if the assessee borr....
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....wed with respect to following interest free loans granted to parties mentioned below: S. No. Total interest free loans granted to related parties Disallowance u/s 36(1)(iii) @ 14% 1 Rs.12535300000 @ 14% Rs. 175,49,42,000 2 Less: Amount credited to P/L Rs. 25,69,29,000/- 3 Rs. 149,80,13,000 4. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) wherein the assessee brought to the notice of the Ld. CIT(A) that the appellant needed funds to avoid being declared NPA (Nonperforming asset) by the Lender Financial Creditors. It was brought to the notice of Ld. CIT(A) that appellant had set up Terminal facilities at Vadinar in Gujarat and was providing Crude/Product handling services to Nayara Energy Limited (hereinafter in short "Nayara") including receipt, storage, handling, and dispatch of crude oil and petroleum products. These facilities were for the exclusive use of Nayara; and hence it can be seen that Appellant has been solely dependent on Nayara for it revenues. 5. In March 2015, the appellant/assessee company faced challenges in servicing the, financial obligations and raising funds for new projects. And as per the ap....
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....practice. 9. The Appellant admitted to have given loans worth Rs.1,157 crores to related parties at an interest rate which is higher than the interest rate paid by Appellant to Banks and related party lender. And the total interest income of Rs 25.69 crores has been credited to P&L and which is reflected in Note no 35 of audited financials. Appellant submitted that AO has made adhoc disallowance of interest expense in excess of interest income earned presuming that interest was not charged on ICDs given. However, the Ld. CIT(A) did not accept the aforesaid submission of assessee/appellant and held as under: - "5.10 During the appellate proceedings, the assessee made various arguments against AO's adjustments and filed submission as made before the AO. The brief of the issue is that, the appellant had set up Terminal facilities at Vadinar in Gujarat, and was providing Crude/Product handling services to Nayara Energy Limited ("Nayara") including receipt, storage, handling, and dispatch of crude oi] and petroleum products. These facilities were for the use of Nayara hence as contended, Appellant has been dependent on Nayara its revenues. In March 2015, the company was faci....
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....deduction accordingly can be permitted under section 36(1)(iii) of the Act. The appellant has casually claimed that the said funds are used for business purpose. The criteria that capital should have been borrowed for the purpose of business or profession is not established by the appellant during the appellate proceedings as well during the course of assessment proceedings. Appellant's contention that AO has considered the weighted average rate of borrowings and presumed that entire amount of loans given are out of it borrowed funds without appreciating the fact that the company has shareholders fund of approx. Rs. 784.07 cr. as at March 31, 2016 the same should have also been considered for giving loans cannot be accepted in the absence of any credible evidence brought before the undersigned. Further, from the facts of the case, it appears that in its critical financial condition there not much difference in paid interest on borrowed funds and received interest on loan issued so that assessee can earn remarkable profit on it The assessee has not submitted any details in respect of loan availed and loan issued and thus failed to establish the genuineness of the transactions. No ne....
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....'t want us to interfere with the order of Ld. CIT(A). 11. We have heard both the parties and perused the records. The Ld AR drew our attention to page no. 144 of the P.B to show that the assessee had given Rs. 230 crores and 927 crores [i.e. total Rs.1157 crores] only for two (2) days and that also on interest at the rate of 13.25% and 13.10 respectively (refer page 114 P.B). Further, it was brought to our notice that the assessee had own funds to the tune of Rs. 784.06 crores. And therefore, according to Ld. AR in such a background, it may be presumed that the amount of Rs. 96.53 crores which was given as security deposits (interest-free) for business purpose was sourced from its own funds. Therefore, relying on the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. (supra) wherein it was held "when the assessee is possessed of mixed funds which include its own funds in sufficient quantity, a presumption that its own funds were utilized for the advances is to be drawn". Thus, according to Ld. AR, therefore, no disallowance of interest was warranted in this case. However, we note that AO as well as Ld. CIT(A) has observed that asse....
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....the assessment on this issue back to the file of AO since we have found that assessee did not get proper opportunity before AO during the assessment proceedings to furnish details/documents called for by the AO. Therefore, we are of the considered view that this issue may be denovo assessed by the AO. Needless to say that AO to give proper opportunity to assessee and liberty is given to it to file written submission/document/details to substantiate its claim as the issue. Ground no. 1 to 3 are are allowed for statistical purposes. 14. Coming to the ground no. 4 to 7 which are regarding disallowance u/s 14A r.w.r. 8D of the Income Tax Rules (hereinafter "the Rules") of Rs.18.50 crores. 15. At the outset, the Ld. AR of the assessee brought to our notice that the assessee did not receive any exempt income. This fact, could not be controverted by Ld. CIT-DR even before us. In such a scenario, the assessee relied on the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs CIT (378 ITR 33) wherein their Lordship's has held that when the assessee had not earned exempt income then no disallowance u/s 14A of the Act was warranted. However, the Ld. CIT(A) relying ....