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2018 (4) TMI 639 - AT - Income TaxDisallowance of interest u/s 36(1)(iii) - Held that:- The assessee was engaged in production of various steel items which was capital intensive and therefore, in continuous need of uninterrupted power supply. The power supply was of utmost importance to carry out day to day activities of the manufacturing and the aforesaid agreement entitled the assessee to obtain 35KWH power supply at average rate of ₹ 2.75 per unit. Therefore, the said agreement was beneficial for the business interest of the assessee and the investment in the said entity was to finance the power project and hence, part and parcel of the same transaction. Further, the assessee was under an obligation to make the aforesaid investment before becoming entitled to obtain power in terms of the agreement. Hence, on factual matrix, proportionate disallowance u/s 36(i)(iii) as made by Ld. AO was not justified. Interest disallowance u/s 14A read with Rule 8D(2)(ii) qua the above investments - Held that:- We restrict the impugned expenses disallowance u/s 14A to ₹ 12,355/-, being exempt income earned by the assessee. Ground No. 4 of assessee’s cross objection stands partly allowed. Disallowance u/s 145A on account of unutilized closing balance lying as Cenvat / Modvat Credit stood squarely covered in assessee’s favor by the judgment in CIT Vs Diamond Dye Chem Limited [2017 (7) TMI 616 - BOMBAY HIGH COURT] - the assessee is consistently following exclusive method to account for excise duty in the books of accounts. We also concur with the view that whatever method of accounting i.e. exclusive method or inclusive method is followed by the assessee, the same would be tax / revenue neutral in nature since the adjustment of stock in a particular period shall result into corresponding variation in the subsequent year and further, the credit balance lying as Cenvat / Modvat Credit was adjustable in subsequent year against excise duty liability arising in subsequent period. Therefore, respectfully following aforesaid binding judicial precedent, we delete the impugned additions. Addition u/s 40A(9) pertains to school expenses reimbursed by assessee to an educational society - Held that:- CIT(A) has rejected the claim of the assessee since the same did not fulfill the prescribed conditions of Section 40A(9). We also find that the nature of payment made by the assessee does not come within the purview of Section 40A(9) / (10). However, the Ld. AR has submitted that the same being incurred for the welfare of employee’s children, which in turn, helps in smooth running of assessee’s business, the same has been incurred for the business purposes of the assessee and hence, allowable u/s 37(1). Upon perusal, we find that there is not enough material on record to substantiate this fact. The school is situated at Khopoli where the manufacturing plant of the assessee is situated and therefore, we find some strength in the argument of Ld. AR. Hence, on factual matrix, we deem it fit to restore the matter back to the file of Ld. AO for considering the assessee’s claim u/s 37(1) with a direction to the assessee to demonstrate that the said expenditure has mainly been incurred for the children of the assessee’s employee and the same has resulted into smooth & efficient running of assessee’s business and the conditions as envisaged by Section 37(1) are fulfilled
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