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2019 (4) TMI 670 - AT - Income TaxDisallowance of expenditure u/s 14A, 36(1)(iii) and 37(1) - Commercial expediency and corporate strategy for advancing interest bearing funds as interest free advances to subsidiary companies - HELD THAT:- In the instant case, there is no dispute that there is no dividend income earned during the impugned assessment year. Therefore, there is no case for disallowing the expenditure relatable to dividend income. This view is also supported by the decision of this Tribunal in the assessee’s own case for the A.Y. 2013-14 [2018 (5) TMI 1256 - ITAT VISAKHAPATNAM] also. Therefore, respectfully following the view taken by this Tribunal in the case cited we hold that there is no case for disallowing the expenditure relatable to exempt income without having derived exempt income. Accordingly, the expenditure relatable to dividend income withdrawn by the assessee required to be upheld. Hence, we set aside the orders of the lower authorities and allow the appeal of the assessee on this issue. Perusal of the Balance Sheet shows that the assessee has shareholder’s funds of ₹ 2478.45 crores and the investment made in mutual funds is a paltry sum of ₹ 1.89 crores. Therefore, we hold that the assessee is having sufficient interest free funds to the make the investment in mutual funds, hence, we do not see any reason to sustain the disallowance u/s 37(1). Accordingly, we set aside the orders of the lower authorities on this issue and delete the addition made by the AO In the instant case, the assessee has demonstrated the commercial expediency and corporate strategy for advancing interest bearing funds as interest free advances to subsidiary companies. The subsidiaries are 100% owned by the assessee company and step down subsidiaries are owned by the subsidiaries, therefore, the interest on borrowed capital required to be allowed as deduction and there is no case for disallowance. Accordingly, we hold that in the instant case there is no case for disallowance of interest u/s 36(1)(iii). Interest free advances given to the assessee to its subsidiary are part of corporate strategy with a business prudence and interest free funds available to the assessee are more than the advances given to the subsidiary company. Therefore, we hold that no disallowance is required u/s 36(1)(iii) of the Act. Accordingly, we hold that the disallowance made by the AO in respect of expenditure relatable to exempt income u/s 14A, disallowance of capital expenditure u/s 37(1) and disallowance of interest expenditure u/s 36(1)(iii) are unsustainable, accordingly deleted. The orders of the lower authorities in respect of ground allowed in favour of assessee Addition of legal expenses - HELD THAT:- From the agreement, it is found that the service provider is providing services to the assessee company for supply of manpower and expertise wherever and and whenever needed on ongoing basis. The assessee has made the payment through cheque and the service tax was paid and the TDS was also deducted for the services rendered by the service provider. The department has not brought on record any evidence to show that the agreement is bogus. Hence, there is no reason to suspect the payment or nature of services rendered. Therefore, there is no case to sustain the addition made by the AO. Accordingly the addition made by the AO is deleted and the appeal of the assessee on this ground is allowed. Disallowance of sponsorship expenses - HELD THAT:- As decided in assesee's own case [2018 (5) TMI 1256 - ITAT VISAKHAPATNAM] expenditure incurred for sponsorship is business expenditure Addition for corporate guarantee commission - assesse charged the guarantee commission from AE @ 0.90% and the TPO proposed for @ 1.30% - HELD THAT:- following the view taken by this Tribunal in the assessee’s own case [2018 (5) TMI 1256 - ITAT VISAKHAPATNAM], we hold that Corporate Guarantee commission charged by the assessee@0.90% is reasonable. Accordingly, we set aside the orders of the lower authorities and delete the addition made by the AO. Folio maintenance charges and provision for leave encashment - made addition in the final assessment order without being brought on Draft assessment order - HELD THAT:- From plain reading of section, it is observed that the AO is not permitted to make any addition which is not contained in the draft assessment order and approved by the DRP. In the instant case, the additions made by the AO in the final assessment in respect of folio maintenance and provision for leave encashment does not contain in the draft assessment order and without the approval of DRP. Therefore, we hold that the additions made in the final assessment with regard to folio maintenance and leave encashment are unsustainable, accordingly deleted. Levying of interest u/s 234A - HELD THAT:- In the instant case, the assessee filed the return of income on 28.11.2014 against the due date of 30.11.2014. Subsequently, the assessee filed the revised return of income on 16.02.2016 within the time limit allowed u/s 139(5). In the earlier paragraphs, we have held that the revised return was filed due to mistake of omission and the same was held to be valid. Since we held that the return of income filed u/s 139(5) is valid, there is no case for levying of interest u/s 234A. Accordingly, the interest charged u/s 234 A is cancelled and the appeal of the assessee is allowed.
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