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2018 (6) TMI 1806 - AT - Income TaxDisallowance u/s 14A - interest expenditure incurred on specific heads is to be excluded for the purposes of Rule 8D - HELD THAT:- We find that the assessee has earned dividend of Rs. 29,018/-. In any case based on the settled position of law, the disallowance cannot exceed the dividend earned. The assessee has fairly submitted before the A.O. that at best 0.5% of the average investment may be considered in relation to indirect expenditure. Keeping in view the facts specific to the instant case and action of the Assessing Officer we direct the Assessing Officer to restrict the disallowance to Rs. 29,000/-. Disallowance under section 40A(2)(b) - assessee had paid interest on unsecured loans to persons covered u/s 40A(2)(b). The rate of interest paid was @ 12% p.a. - maximum rate of interest on unsecured loans should not be more than 11% and so he restricted the claim of interest to 11% - HELD THAT:- The disallowance of 1% on account of interest paid the outside parties which the assessee categorically explains to be not related as per the Section 40A(2)(b) is against the provisions of the Act. Even so keeping in view the market condition since the monies have to be raised at a faster pace, payment of 1% excess interest cannot be said to be unreasonable and hence the addition made is hereby deleted. - Decided against revenue. Disallowance of interest on account of diversion of funds to the sister concern - AO questioned the assessee regarding disallowance of interest on diversion of funds to sister concern and the assessee had submitted that it has the same stand on the issue as in the A.Y. 2010-11 - HELD THAT:- On perusal of the fact on record we find that there is no evidence on record except a presumption that interest bearing funds were used for giving loan to the sister concerns. The similar issue has been adjudicated in the case of the assessee for the A.Y’s 2006-07, 2008-09, 2009-10 and 2010-11 on similar facts. We therefore uphold the order of the Ld. CIT(A) and deleting the disallowance. Disallowance on adhoc lump sum basis - HELD THAT:- As we find that the Assessing Officer has not brought any material on record primarily to disallow the expenditure. Keeping in view the assessee’s argument that the rise in expenditure is due to rise in diesel prices and the fact that advertisement expenses have come down with relation to the overall sales, we find no reason to confirm the disallowance made by the Assessing Officer in the absence of any cogent material brought on record by the Assessing Officer. Addition on account of subsidy - HELD THAT:- Assessing Officer made addition as documents has not been submitted regarding the receipt of the subsidy.CIT(A) has also deleted the addition on assumption that the earlier Assessing Officers must have satisfied themselves about the correctness of the claim. We hereby direct the assessee to produce the documents pertaining to receipt of subsidy and also calculation of depreciation. The Assessing Officer is hereby directed to go through the documents submitted, satisfy himself and allow as per the rules in force and in accordance with the provisions of the Income Tax Act,1961. Disallowance u/s 37(1)/36(1)(iii) - assessee had debited interest of more than Rs. 2.35 crores to the profit & loss account - HELD THAT:- We have gone through the facts on record, placing reliance in the case of Bright Enterprises Pvt. Ltd. [2015 (11) TMI 342 - PUNJAB & HARYANA HIGH COURT] has observed that if the interest free funds are available a presumption would arise that investment would be out of interest free funds. The commercial expediency is not in doubt as the advance was given for purchase of Shop for the business of the company in the Mandi Area to be set up by the Board. Disallowance of interest - HELD THAT:- CIT(A) held that the assessee has submitted that this amount was not claimed as an expenditure and it is shown as advance only. An expenditure cannot be disallowed if it has not been debited to the profit & loss account. Therefore, the Assessing Officer is directed to verify as to whether the assessee has claimed this amount and if the assessee has not claimed this amount, then not to make the disallowance. The revenue shouldn’t have come to higher forums on such clear finding by the Ld.CIT(A) which is purely a matter of factual verification. Hence we decline to interfere in the order of the Ld.CIT(A). Addition on account of suppression of sales to sister concern - HELD THAT:- As the assessee has cited many cogent reasons like huge volume of sales to these concerns etc. to justify the sales to the sister concerns at lower rates. It may be clarified that while the addition for inflated purchases in respect of purchases made from sister concerns could be made u/s 40A(2)(a), but there is no corresponding provision in respect of sales made to sister concerns. The department cannot compel a person to make profit out of every transaction since the department does not have any authority to, ask a person to maximize its profits. If the assessee chooses to give discount to someone, he is free to do it. The only criteria/condition is that the transaction (sale) should not result in loss. This principle was enumerated by the Hon'ble Supreme Court in the case of M/s Calcutta Discount Company Ltd. [1973 (4) TMI 6 - SUPREME COURT] in which Their Lordships have held that when a trader transfers his goods to another trader at a price which is less than the market price, so long as the transaction is bona fide, the revenue authorities cannot consider the market price ignoring the real price fetched to compute profits from the transaction. It was also held by the Apex Court in this case that an assessee was at liberty to arrange his affairs so as to minimize his tax burden. In the instant case, the persons to whom sales are made at lower rates are tax payers in the highest marginal tax bracket and so it can not even be viewed as a scheme for tax reduction. In view of this discussion, it is held that the Assessing Officer was not justified in making addition on account of sales made to associated concerns at lower rate and the same is deleted. - Decided in favour of assessee. Disallowance of commission - CIT(A) confirmed the addition holding that the assessee has merely submitted that the confirmation can be asked for from the respective parties - HELD THAT:- We find that the commission payments have been regularly debited by the assessee to the P&L Account from 2008-09 onwards. We therefore consider it fit in the interest of justice to restore the matter back to the file of the Assessing Officer with directions to the assessee to produce relevant documents and evidences before the Assessing Officer so as to make him eligible for allowance of this expenditure. Assessee ground allowed for statistical purposes. Disallowance of Travelling expenses - assessee had submitted that this expenditure was incurred for visit to USA towards stay and ticket to explore possibility of export of DOC and import of Soyabean oil and to explore the possibility of efficiencies of process and process improvements - HELD THAT:- We have heard the argument of both the parties and perused the material available on record, and consider it fit in the interest of justice to restore the matter back to the file of the Assessing Officer with directions to the assessee to produce relevant documents and evidences before the Assessing Officer so as to make him eligible for allowance of this expenditure. Disallowance of Staff Welfare Expenses - HELD THAT:- We find that the expenditure is involved as a part of the Staff Welfare wherein the wards of the employees are benefited by studying in the school which was constructed in the remote area with the collaboration of the State Education Department. Hence, this can be treated as Staff Welfare Expenses and hence the addition made by the Assessing Officer is hereby directed to be deleted. Ground of assessee allowed.
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