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2019 (11) TMI 406 - AT - Income TaxAssessment u/s 153A - disallowance being 20% of fee paid to ROC as capital expenditure - Penalty u/s 271(1)(c) - HELD THAT:- Nature of addition which is made in the hands of the assessee is 20% fee paid to ROC for increase in share capital. The disallowance has not been made on the basis of any incriminating material found during the course of search. In absence of the same, the Assessing Officer cannot exercise his jurisdiction u/s 153C of the Act for the captioned Assessment Year. We place reliance on the ratio laid down by the Hon’ble Apex Court in the case of Sinhgad Technical Education Society [2017 (8) TMI 1298 - SUPREME COURT] and Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] Hence, the assessment order passed by the assessee u/s 153C r.w.s. 143(3) do not stand. The additional ground raised by the assessee is thus allowed. Disallowance of interest paid to Y2K System, on the ground that the loan taken from Y2K System, was treated as unexplained in Assessment Year 2003-04 - HELD THAT:- Admittedly, the said loan which was raised vide loan agreement dated 16.03.2002 was advanced to the assessee was interest free for a period of four years. - earlier agreement came to an end and a fresh loan agreement was entered into between the parties, under which it was agreed that the interest @ 6 % would be charged. There is no dispute of the aforesaid stand of the assessee. The only question whether by a subsequent agreement between the parties, interest free loan can be converted to interest bearing loan the answer to the same is ‘yes’. The parties in the first go had agreed that the loan would be non interest bearing but later on lender had demanded interest @ 6 % w.e.f. 01.04.2006 which was agreed upon by the borrower of the assessee company. In these circumstances, the interest claimed by the assessee was to be allowed in its hands in its entirety. Coming to the next statement of the assessee that since it had losses, the interest expenditure was reversed back in Assessment Year 2009-10 on which taxes were paid in the said year. The said fact is again not disputed and while deciding the present appeal, we consider the facts for the present year and decide the issue on its merit. Accordingly, we allow the claim of the assessee vis-à-vis the interest expenditure. Diminution in value of foreign exchange loan - HELD THAT:- Loss on re-statement of the foreign exchange loan was claimed as deductible in the hands of the assessee. As per the Standard AS-11 of Accounting principles, such restatement of foreign exchange loan is the requirement of accounting principles. On such re-statement, the loss or gain arising there from is to be allowed as a deduction or added as income in the hands of the assessee, as the case may be. The assessee has filed tabulated chart in this regard wherein in Assessment Year 2005-06 loss arises in the hands of the assessee of ₹ 17,20,000/-, which has been allowed as a deduction. Further, the gain arising in all the other years has been added in the hands of the assessee. Following the similar principle of accounting, the assessee in the year under consideration had debited expenditure of ₹ 2.22 crore, which merits to be allowed as revenue expenditure. Accordingly, we hold so. We also find that the said issue stands covered by the ratio laid down by the decision of Hon’ble Supreme Court in the case of CIT vs Woodward Governor India Pvt.Ltd [2009 (4) TMI 4 - SUPREME COURT] Disallowance u/s 14A - HELD THAT:- wherein no exempt income has been earned by the assessee during the year. Following the ratio laid down by the Hon’ble High Court in the case of Cheminvest Ltd. vs CIT [2015 (9) TMI 238 - DELHI HIGH COURT] , we hold that no disallowance in such cases is to be made in the hands of the assessee. Hence, Ground No.4 raised by the assessee is thus allowed. Penalty u/s 271(1)(c) - disallowance of foreign exchange loss and the disallowance made u/s 14A - HELD THAT:- CIT(A) deleted the penalty against which the Revenue is in appeal. We have in paras above already deleted the disallowance made in the hands of the assessee both on account of foreign exchange loss and addition u/s 14A of the Act. Hence, there is no basis for levy of any penalty for concealment of income u/s 271(1)(c)
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