TMI Blog2018 (6) TMI 1523X X X X Extracts X X X X X X X X Extracts X X X X ..... come. Therefore, the AO was required to work out the average of such investment, the income from which did not form part of the total income instead of total value of investment. None of the parties before us, however, have laid any details to examine as to which of the investments have yielded such in come which did not form part of the total income. We, therefore, restore the matter back to the file of the Assessing Officer for calculating the disallowance u/s. 14A read with Rule 8D afresh - ITA No. 3324/ Del./2015 - - - Dated:- 27-6-2018 - Shri Bhavnesh Saini, Judicial Member And Shri L.P. Sahu, Accountant Member Assessee by: Sh. R.K. Kapoor, C.A. Revenue by: Sh. Amit Jain, Sr. DR ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the assessee against the order of ld. CIT(A)- III, New Delhi dated 27.03.2015 for the assessment year 2009 - 10 on the following grounds: 1.0 That the order of assessment passed by the AO and upheld by Hon'ble CIT(A) is bad in law. 2.0 That the Hon'ble CIT(A) has erred in law and on the facts and circumstances of the assessee's case in following its predecessor's order without considering the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Satara Rubber and Chemicals Ltd. The said advance was given out of business expediency and business needs. The assessee also highlighted that he has not granted any physical loan in cash to the said subsidiary. The assessee has incurred certain expenses or discharged other business obligations on behalf of the said company through its own funds, which have been shown recoverable as advance from the said subsidiary. The Assessing Officer was not satisfied from the submissions of the assessee and observed as under: In view of the above, detailed discussion the interest payment made by the assessee to the extent of loan advanced to the sister concern free of interest, is being disallowed under section 36(1)(ii) of the Act. Reliance in this regard is placed on the decision of the Hon ble High Court of Punjab and Haryana in the case of Commissioner of Income Tax versus Abhishek Industries Ltd. The Hon ble Court has held that once assessee has borrowed certain funds on which liability to pay tax is being incurred and on the other hand, certain amounts had been advanced to sister concerns without carrying any interest and without any business purpose, the interest to the extent th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced by the Assessing Officer on the judgment of CIT vs. Abhishek Industries Ltd. (supra) for making the disallowance, now do es not hold ground in view of the judgment of Supreme Court in the case of Munjal Sales Corporation vs. CIT (supra), wherein the judgment of CIT vs. Abhishek Industries Ltd. (supra) has been reversed and it has been specifically held by the Hon'ble Apex Court that so long as funds have been given to the sister concern out of interest free funds, no disallowance u/s 36(l)(iii) can be made. Thus, without their being material to controvert the finding of the Learned CIT (Appeals) that advance standing in the name of the subsidiary is out of assessee's own interest free funds, we do not find any reason to deviate from such a finding of fact. Accordingly, the order of the Learned CIT (Appeals) is upheld and ground raised by the Revenue is dismissed. AY 2008 - 09 Similar facts and findings of authorities below are permeating in this year also in as much as we find that the assessee has huge interest free funds in the form of share capital and reserve and surplus which stood at more than ₹ 2000 Cr and surplus cash flow from operating acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free income and not assumed expenditure or deemed expenditure. It may be submitted that this judgement of the Bombay High Court has been confirmed by the Hon'ble Supreme Court in [326 ITR 1]. Similarly, in the case of CIT v. Her o Cycles Lt d. 323 ITR 518, Hon'ble Punjab Haryana High Court has held that if there is no nexus between income earned and expenditure incurred, no disallowance can be made. We may also refer to the decision of Hon'ble Delhi High Court in the case of CIT v. Sushma Kapoor reported in 2009-TIOL-713-HC-Delhi. Also no disallowance can be made u/s 14A of the Act in an mechanical application of Rule 8D when no satisfaction recorded about the claim of the assessee regarding non - incurrence of expense or disallowance offered by the assesee. Reliance is placed on Maxopp Investments Lt d. vs. CIT [2014 - TIOL - 2239 - HC - DELHI]. The AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is condition precedent. Also Hon'ble SC in case of Maxxop Investment [2018] 91 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment in securities almost 20 years back and there is no further activity in investment portfolio. Thus it is evident that no time and effort has been spent in managing the investment portfolio of the assessee which for last many years is showing the balance of ₹ 20.92 Cr on the basis of which the Ld. AO has made disallowance. The dividend income of ₹ 30.60 Lacs received during the year is in respect of investment in Preference Shares of subsidiary company Federal Mogul TPR for ₹ 5.10 Cr. This is also evident from RPT schedule which shows the amount of preference dividend received from Federal Mogul TPR. Without prejudice to the above, it is submitted that average value of investment for making disallowance as per Rule 8D should be restricted to the value of investments on which dividend has been received during the year and not on all the investments appearing in balance sheet. Reliance is placed on ACB India Ltd [TS-176-HC-DELHI-2015] in which it was held that - The AO, instead of adopting the average value of investment of which income is not part of the total income i.e. the value of tax exempt investment, chose to factor in the total investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld and ground raised by the Revenue is dismissed. Similarly in appeal for A.Y. 2008 - 09, the Tribunal has observed as under: Similar facts and findings of authorities below are permeating in this year also in as much as we find that the assessee has huge interest free funds in the form of share capital and reserve and surplus which stood at more than ₹ 2000 Cr and surplus cash flow from operating activities at ₹ 149 Cr an fresh capital received during the year amounting to ₹ 100 Cr. In the wake of such huge surplus funds, advances of ₹ 9.71 Cr during the year, cannot presumed to be out of interest bearing loans. Thus in the light of the principle held by Tribunal in the earlier year, we direct the deletion of the said disallowance and accordingly the grounds raised by the assessee are allowed. 7. Respectfully following the above decisions of coordinate Bench, the issue pertaining to interest is decided in favour of the assessee. Accordingly, the ground relating to this issue is allowed. 8. Regarding the disallowance u/s. 14A, we observe that the assessee is earning income under different heads, as mentioned above. During the year, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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