TaxTMI 
TaxTMI 
2026 (7) TMI 1387
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....e u/s. 143(2) and 142(1) of the Act along with questionnaire were issued and duly served upon the assessee. The assessee also complied with the notices issued by the Assessing Officer (In short, 'AO') by furnishing all the details and evidences as called for. On the perusal of materials available on record and also evidences filed by the assessee, it is noted that assessee-company had shown loan and advances of Rs. 1,02,54,91,335/- in the balance sheet and debited interest of Rs. 3,46,71,593/- on loans in profit and loss account. Accordingly, the assessee was called for details of loans and advances along with names and addresses of the parties, rate of interest and charges on loans. The AO noted on the basis of the reply furnished by the assessee that the assessee has charged lower rate of interest of 9% on the loans given. The AO, further noted that the assessee has given advances to the tune of Rs. 53,34,49,570/- without charging any interest on these advances. Accordingly, the assessee was called upon to explain the same which was also replied by submitting that the assessee is a NBFC company principally engaged in holding shares of group companies to retain the control and man....
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....it debited expenses on account of interest paid on secured and unsecured loans and secondly by giving loans at lower rate and interest free advance to various parties as well as for the purchase of properties from interest bearing borrowed funds. We observe that AO noted that advances and loans were nothing but diversion of funds for non-business purposes for which assessee was not entitled to claim interest. Finally, the AO has disallowed the interest debited in the profit and loss account. 6. So far as the loans given to related parties and non-related parties free of interest are concerned, we observe that these loans were given in the normal course of business out of own funds of the assessee as well as the interest free advances received by the assessee. We note that the assessee's own funds were to the tune of Rs. 29,45,42,351/- as is apparent from the audited balance sheet as on 31.03.2011. We also note that the assessee has received interest free advances to the tune of Rs. 35,00,00,000/- from M/s Handy Tolls Engineers Pvt. Ltd., which was duly reflected in the audited financials of the assessee. Thus, the total of own funds and interest free advances comes to Rs. 51,50,....
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....proached the matter from an erroneous angle. The assessee borrowed the fund from the bank and lent some of it to sister-concern fa subsidiary) on interest-free loan. The test in such a case is really whether this was done as a measure of commercial expediency. The decisions relating to s. 37 will also be applicable to s. 36(1)(iii) because in s. 37 also the expression used is "for the purpose of business". It has been consistently held in decisions relating to s. 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. The High Court as well as the Tribunal and other IT authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest-free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed. The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prude....
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....gation of the AO that giving and taking loans were used as device to circumvent the taxes. However, the AO has failed to bring on record any material to prove that utilization of borrowed funds was colourable device. In our opinion, there is no such business in which assessee makes profit only. Considering the facts and circumstances of the case, we are of the considered view that the interest disallowance made by AO and confirmed by the Ld. CIT(A), is not sustainable in the eye of law and accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Hence, Ground Nos. 1 to 3 are allowed. 9. Issue in Ground No. 4 is against the order or Ld. CIT(A), sustaining the addition of Rs. 1,12,12,763/- as was made by AO u/s. 14A of the Act in spite of the fact that no exempt income was earned during the year. 10. The facts of the case in brief are that the assessee had investment in equity shares/securities as on 31.03.2011 to the tune of Rs. 28,63,71,938/-. The assessee has not earned any income during the year. The assessee has not also made disallowance u/s. 14A of the Act for the reason that no expenditure was incurred by the assessee which warrants di....
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....only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. This is why the question of satisfaction is provided in section 144 and rule 8D(1). that relates to the accounts of the assessee. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. A question may arise as to why the term "average of the value of investment" is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of interest during the previous year, which is not directly attributable to any particular income, the findings of the Id. CIT(A) on the issue stand confirmed and consequently the appeal filed by the Revenue stands dismissed. 8. In respect of provisions of rule 8D(2)(iii), which is the subject-matter of th....
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....sis of the judgment cited by Mr. Bhowmick, it cannot be said that the appeal raises any question or substantial question of law. The appeal is, therefore, not admitted and is, consequently, dismissed." Since no exempt dividend was earned by the assessee during the relevant year, the average value of those shares which yielded dividend income during the year comes to zero. Hence, no disallowance is warranted u/s. 14A of the Act." 14. We further note that the Finance Act, 2022 has amended the section 14A of the Act and provided that the provisions of this section shall apply irrespective of the fact whether the assessee has earned any exempt income during the year or not. However, a perusal of the Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment to section 14A of the Act will take effect from 01.04.2022 and will apply in relation to the A.Y. 2022-23 and onwards. The Hon'ble Delhi High Court in case of PCIT (Central) vs. Era Infrastructure (India) Ltd., (2022) 141 taxmann.com 289 (Delhi), dated 20.07.2022 has held that amendment made to section 14A of the Act by inserting a non-obstante clause and explanation will take effec....