TaxTMI 
TaxTMI 
2026 (3) TMI 1474
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....er: 1. That the Hon'ble CIT(A) 51, Mumbai has grievously erred in confirming the addition of Rs. 46,51,891/- u/s 14A r.w.r 8D made by the Ld. DCIT Central Circle 3(3), Mumbai in the order u/s 143(3) of the Act. 2.1 The grounds raised by the Revenue in its appeal are reproduced as under: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of notional interest under section 36(1)(iii) without considering the fact that the assessee has failed to furnish conclusive evidence to demonstrate that the investments were, in fact, made exclusively out of interest-free funds. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of notional interest under section 36(1)(iii) of the Act by placing reliance upon the judgement of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. without appreciating that the facts are distinguishable as in the instant case, there is no clear segregation of funds and the assessee has not maintained separate accounts delineating the flow of interest-free and interest-bea....
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....disallowance of delayed payment of the employee's contribution to provident fund amounting to Rs. 6,49,073/- ; (iv) prior period expenses amounting to Rs. 46,08,954/- and (vi) disallowance u/s 14A of the Act amounting to Rs. 1,55,05,320/- etc. 4. On further appeal, the Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved, both the assessee and the Revenue are in appeal before the Tribunal raising the grounds as reproduced above. 5. The ground No. 1 of the appeal of the assessee and ground No. 4 of the appeal of the Revenue are inter connected and are in relation to disallowance u/s 14A r.w.r. 8D of the Income-tax Rules, 1962 (in short 'the Rules'). 5.1 Brief facts qua the issue in dispute are that the Assessee reported exempt income of Rs. 53,83,764/- but offered no suo motu disallowance, contending that its strategic investments in 'Orient Abrasives Ltd.' were funded entirely by its own interest-free capital and reserves (amounting to Rs. 116.86 Crores). The Assessing Officer (AO) rejected this "strategic investment" plea, citing the Hon'ble Supreme Court's ruling in Maxopp Investment Ltd. v. CIT, and applied Rule 8D to disallow Rs. ....
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....of the average investment. Following the decision of the Special Bench in Vireet Investment Ltd. reported in 165 ITD 27, the ld CIT(A) directed the Assessing Officer to restrict the average of investments which had actually yielded exempt income during the relevant year. The Ld. CIT(A) noted that addition of Rs. 46,51,891/- was less than amount of exempted income earned and accordingly he restricted the disallowance to Rs. 46,51,891/-. The relevant finding of the Ld. CIT(A) is reproduced as under: "11.5.8 The legal principle that the amendment to Section 14A cannot be given retrospective effect has been followed be several other subsequent decisions of Mumbai ITAT. Respectfully following the same it is held that the amendment to Section 14A cannot be applied to the instant assessment year. Therefore, the ground of the appellant that the amount of disallowance cannot exceed the exempt income is allowed. 11.5.9 Coming to the computation of disallowance in terms of Rule 8D, it is seen that the AO has computed an amount of Rs. 1,08,53,323/- U/r Rule 8D(2)(ii) on account of interest expense attributable to the investment and Rs. 46,51,891/- U/r 8D(2)(iii) on account of....
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....f Rs. 46,51,891/-. The Ld. CIT(A) deleted the interest disallowance made under Rule 8D(2)(ii)]by invoking the "Principle of Presumption" established by the Jurisdictional High Court in CIT v. Reliance Utilities & Power Ltd. (supra) and HDFC Bank Ltd. (supra). The law is well-settled. Where an Assessee possesses a mixed fund" comprising both interest-bearing and interest-free funds, and the interest-free funds (Capital + Reserves) are sufficient to cover the impugned investments, a presumption arises that the investments were made out of interest-free funds. Since the Assessee's reserves (Rs. 116.86 Crores) comfortably exceed the investment (Rs. 74.74 Crores), we find no infirmity in the Ld. CIT(A)'s deletion of the interest disallowance. Accordingly, the ground no. 4 of appeal of the Revenue is dismissed. 5.5 As far as the disallowance of administrative expenses under rule 8D(2)(iii) is concerned, the Ld. CIT(A) has already relied on the decision of the Special Bench of Vireet Investment Pvt. Ltd. (supra) and therefore, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute in relation to disallowance under Rule 8D(2)(iii) of the Rules. The g....
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....record balances of Share Capital and Reserves from FY 2000-01 to FY 2015-16 and submitted that the said interest free balances at no point in time were lower than the interest free advances given to PCL. The Hon. Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd. (313 ITR 340) when dealing with a similar question allowed the appeal in favour of the assessee and at para 10 held as under: "10. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd. (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court no....
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....iance Utilities (supra), once the availability of sufficient interest-free funds is established, the Revenue cannot surmise that interest-bearing borrowings were diverted. Since the Ld. CIT(A) has followed the decision of the Hon'ble Jurisdictional High Court while deleting the addition, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute. Consequently, the deletion of the notional interest disallowance is upheld. The ground Nos. 1 and 2 of the appeal of the Revenue are accordingly dismissed. 7. The ground No. 3 of the appeal of the Revenue relates to disallowance made by the Assessing Officer weighed deduction for research and development expenses claimed u/s 35(1)(ii) claimed by the assessee at Rs. 3,50,00,000/- which has been restricted by the Ld. CIT(A) to the extent of actual expenditure of Rs. 2,00,00,000/-. 7.1 The assessee has filed additional ground requesting that the disallowance sustained by the Ld. CIT(A) u/s 35(1)(ii) should be considered u/s 37(1) of the Act. The additional ground raised by the assessee is reproduced as under: Ground No 3 :: 1. That the Hon'ble CIT(A) 51, Mumbai has grievously erred in a....
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....ional or international journals during the year; 3. Any patents or other similar rights applied for or registered during the year; 4. Any patents or other similar rights applied for or registered during the year; 5. Programme of research projects to be undertaken during the forthcoming year and the financial allocation for such subjects. The books of accounts of Ashapura Minechem Limited states that main business activity is mineral exploration, mining and trading etc. It is to be noted that the assessee has admitted vide submission dated 19.11.2018 that as research and development activity is incidental or ancillary to the attainment of the main object. Therefore, assessee claim towards scientific research & development Rs. 3,50,00,000/- cannot be allowed as Ashapura Minechem Ltd. not fulfilled the provisions stated in Section 35(1)(iia)of the Income Tax Act. Moreover in the same provision of Section 35(1)(iia) of the Income Tax Act clearly states that assessee company should fulfils such other conditions as prescribed in Rule 5F. However assessee has not filed any statement before the Commissioner of Income Tax in ter....
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....h reports from the Innovation and Knowledge Centre of Ashapura Minechem Limited, first being report on Calcined Bauxite for Refractory and Abrasive Application for which Rs. 50,00,000/- has been paid and second being report on Beneficiation of Low-Grade Bauxite for which Rs. 1,50,00,000/- has been paid. The research centre is approved by the Department of Scientific and Industrial Research (DSIR) under Section 35(2AB) of the Act. In its return of income, the appellant claimed a weighted deduction of Rs. 3,50,00,000/- under Section 35(1)(ii) of the Act, being 1.75 times the amount paid. The AO however disputed the claim of weighted deduction on the ground that the appellant has not produced any evidence to suggest that Ashapura Minechem Ltd to whom this payment has been made fulfils all the condition laid down in Section 35(1)(ii) of the Act, under which weighted deduction can be claimed. The AO has however disallowed the entire claim of the appellant including the payment of Rs. 2,00,00,000/-. 8.3.2 Upon perusal of the approval of the approval of DSIR vide Form No 3CM dated 6.11.2013 and valid upto 31.03.2016 further renewed upto 31.03.2019 it is seen that the approval gra....