TMI Blog2017 (4) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and law applicable thereon so demands. Thus, with these directions, this issue is sent back to the file of the AO and may be treated as allowed, for statistical purposes. Disallowance of interest u/s 36(1)(iii) - whether there was no prudence in carrying out the activity in such a manner which culminated into incurring of net interest loss - Held that:- The doubt noted by the AO with respect to incurring of loss could have at the best be it a triggering point for further investigation but that itself cannot be a conclusive ground to make disallowance in the hands of the assessee. Unfortunately, the AO failed in carrying out any investigation to contradict the transaction. In fact, it also appears to us that AO did make some verification but nothing ingenuine or wrong was noted by him. Rather, the transactions were duly substantiated. Similarly, at the stage of Ld. CIT(A) also nothing wrong or ingenuine could be brought on record by him. Under these circumstances, we find that disallowance has been made merely on the basis of whims and fancies, surmises & conjectures and doubts & suspicion made by the lower authorities. It is well settled law that a revenue officer cannot sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and contrary to the facts of the case and against the provisions of law. 3. The above grounds / sub-grounds are without prejudice to each other. 3. Ground 1: In this ground, the assessee has agitated the disallowance of ₹ 2,49,01,301 made by the AO U/S 14A r.w.r. 8D. 4. The brief background is that the assessee is a Non Banking Financial Company (i.e. NBFC). In the return filed for the impugned assessment year, the assessee suo moto made disallowance u/s 14A for an aggregate amount of ₹ 2.51 crores comprising of ₹ 2.49 crores on account of interest u/r 8D(2)(ii) and ₹ 2.25 lakhs on account of administrative expenses u/r 8D(2)(III). However, subsequently it was found by the assessee that the disallowance has been wrongly offered by it in the return of income. Therefore, the assessee contested the issue before Ld. CIT(A) and submitted in detail that income has been wrongly returned by the assessee and, therefore, before Ld. CIT(A) assessee resiled from the return of income filed by it. However, Ld.CIT (A) was not satisfied with the submission of the assessee on the ground that assessee had himself made the disallowance in the return of income file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition that once assessee has himself made a disallowance, then he cannot seek relief for the same at a subsequent stage. It was submitted by him that CIT(A) has rightly confirmed the impugned disallowance and the orders passed by the lower authorities should be confirmed. 9. We have gone through the orders passed by lower authorities and submissions made by both the sides before us. It is well settled and has been echoed so at number of occasions by Hon ble Supreme Court and many other courts of our country that objective of the income-tax proceedings is to determine the taxable income of the assessee and tax payable thereon, fairly and as per law only. It is also noted that Article 265 of Constitution of India also provides in express terms that no tax can be collected without authority of law. It is also noted by us that way back in 1955, the Central Board of Revenue (now called as Central Board of Direct Taxes) had issued a circular wherein guidance was given to the AOs that they should assess taxable income and compute the tax liability of the taxpayers in accordance with law only and they should not take undue advantage of ignorance of the assessee. In case, any deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces to establish its claim, as may be required by the AO from time to time. The AO shall decide this issue afresh after considering the material and the arguments as may be brought on record by the assessee on objective basis and shall be free to decide this issue independent of the voluntary disallowance made by the assessee in the return of income. The AO would be well within his powers to assess the income below the amount offered by the assessee in the return of income, if the facts of this case and law applicable thereon so demands. Thus, with these directions, this issue is sent back to the file of the AO and may be treated as allowed, for statistical purposes. 11. Ground 2: The assessee is aggrieved by the action of lower authorities in making disallowance of interest u/s 36(1)(iii) amounting to ₹ 2,13,47,579/-. 12. The brief background of the case is that assessee was engaged during the year in finance business being a Non Banking Financial Company. It had taken loan from various parties (lenders) and gave it to certain other parties (i.e. borrowers). It was noted by the AO that assessee had paid interest to its lenders amounting to ₹ 10,49,34,035 whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business in a prudent manner. 16. We have gone through the orders passed by the lower authorities. It is noted by us that assessee had taken loans from well established and duly identified financial institutions. The factum of borrowing of amount and payment of interest from these well established companies has neither been doubted nor denied by the AO. Similarly, the assessee gave loans to corporate entities. The factum of earning of interest income from these companies was also duly verified by the AO and nothing could be brought on record by the AO to negate or even doubt if any amount of interest higher than the amount shown by the assessee in its accounts was received by the assessee. Thus, the entire transaction of taking of loan payment of interest thereon and giving of loan earning of interest income there from was duly established and substantiated. Nothing ingenuine has been found by either of the lower authorities. The only grievance of the lower authorities was that there was no prudence in carrying out the activity in such a manner which culminated into incurring of net interest loss. We have carefully considered the action of the AO. In our view, the doubt note ..... 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