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2020 (10) TMI 1370 - AT - Income TaxAddition u/s 68 - unexplained cash credit for the loans taken - HELD THAT:- Both the lender companies i.e. Aereo Deal Com Pvt. Ltd and M/s Chamak Traxim Pvt. Ltd are genuine companies carrying out regular business of finance in their capacity as Non Banking Finance Companies registered with Reserve Bank of India and having sufficient liquidity to give loan to various borrowers. Ld. CIT(A) has also mentioned the fact that Mr. Deepak Kalani who controls the financials of M/s ADPL and M/s CTPL is having long time friendship with the Directors of Agrawal Group of Companies and in the past also he has given loan to other group concerns of Agrawal Group on interest. We further find that the issue of unexplained cash credit u/s 68 of the Act from the very same lender companies namely M/s Aereo Deal Com Pvt. Ltd and M/s Chamak Traxim Pvt. Ltd which were received by another group concern of the assessee namely M/s Agrawal Coal Corporation Pvt. Ltd and Admanum Finance Ltd came for adjudication before the Tribunal wherein the appeal was filed by the revenue challenging the finding of Ld. CIT(A) deciding in favour of the assessee. The Co-ordinate Bench has dealt this issue in Agrawal Coal Corporation Pvt. Ltd [2011 (10) TMI 496 - ITAT INDORE] and has confirmed the finding of Ld. CIT(A) thereby confirming the identity of the lenders , genuineness of transactions and accepting the creditworthiness of the lender companies namely M/s ADPL & M/s CTPL and holding that the Ld. A.O was not justified in making the addition u/s 68. Thus assessee has duly proved the identity of the cash creditors, genuineness of the transaction and proved creditworthiness of the lender companies which thus do not call for any addition u/s 68 of the Act and the interest paid on such loans should be allowed. Disallowance u/s 14A r.w.r. 8D - CIT(A) held that disallowance of interest was not called for since at the end of the year it earned net interest income and secondly the assessee had sufficient own capital and from reserves to cover up the investments made - HELD THAT:- As far as interest disallowance is concerned we observe that during the year assessee has earned interest income which is higher than the interest paid during the year. The judgment of Hon’ble Bombay High Court in the case of CIT V/s Reliance Utilities & Power Ltd [2009 (1) TMI 4 - BOMBAY HIGH COURT] is also squarely applicable in the case of assessee as the assessee has sufficient share capital and free reserves at Rs. 1584.75 lakhs and Rs. 1682 lakhs as on 31.3.2013 and 31.3.2014 respectively to cover up the investments of Rs. 1101.46 lakhs. This itself proves that borrowed funds have not been utilised for making these investments and nothing contrary has been brought to our notice by the revenue authorities. Therefore we confirm the finding of Ld. CIT(A) to the extent of that no interest disallowance was called for u/s 14A of the Act in the case of the assessee and thus the interest disallowance has been rightly deleted. Remaining portion as computed by the Ld. A.O applying 0.5% on the average investment the word average investment referred in Rule 8D of I.T rules certainly does not include the investments made for earning taxable interest income but for sure includes the investment fetching tax free interest and those made in equity shares, which can be listed or unlisted. The contention of the assessee and finding of Ld. CIT(A) that investment in unlisted companies should not consider for computing the disallowance under third limb of rule 8D is devoid of any merit. There is no bar under the law for the unlisted companies to declare dividend. In other words dividend income can be generated from both the listed as well as unlisted companies. So for calculating the disallowance under third limb of Rule 8D of I.T. Rules we first need to subtract the investment in debentures of Rs. 5 crores from the total average investments of Rs. 11.01 crores. The resultant average investment will be Rs. 6.01 crores and 0.5% of this average investment works out to Rs. 3,00,731/-. However the disallowance so calculated at Rs. 3,00,731/- should not exceed the dividend income earned by the assessee during the year at Rs. 2,70,120/-. Our this view of not making disallowance u/s 14A of the Act exceeding the total exempt income earned during the year is on the basis of the judgment of Cheminvest Ltd [2015 (9) TMI 238 - DELHI HIGH COURT] wherein as confirmed the finding of Tribunal that in the absence of any exempt income disallowance u/s 14A of the Act is not warranted. In view of the above judgment we sustain the disallowance u/s 14A of the Act at Rs. 2,71,120/-. Thus Ground No. 1 of assessee’s appeal in case of Admanum Finance Ltd is partly allowed.
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