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TMI Blog2015 (4) TMI 884X X X X Extracts X X X X X X X X Extracts X X X X ..... ered and decided by the Tribunal. The Departmental Representative had no objection to admitting the amended-cumadditional grounds of appeal. We, therefore, admit the amendedcum- additional grounds of appeal of the assessee and adjudicate the same as under:- 4. The Ground No. 1 of the assessee's appeal for Assessment Year 2007-08 is directed against the order of the CIT(A) confirming disallowance of Rs. 69,73,973/- out of interest paid on borrowings disallowed by the Assessing Officer u/s 36(1)(iii) of the Act. 5. The brief facts of the case are that on perusal of the Schedule 20 of the balance-sheet, the Assessing Officer observed that the assessee had paid interest on working capital amounting to Rs. 11,96,81,912/-. From the details furnished by the assessee, he found that the assessee had advanced a sum of Rs. 5,07,00,000/- to various parties from whom no interest has been received/charged, the details of which are as under:- Sr. No. Name Amount (Rs.) Amount (Rs.) 1 Narendra S. Vohra 50,000 5,00,000 2 Harshadbhai M. Shah 20,000 2,00,000 3 Shreyanshbhai S. Shah 41,53,973 4,25,00,000 4 Aspass Investment Pvt Ltd 2,00,000 20,00,000 5 Anwesha Stock Trade Pvt Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Torrent Financiers vs. ACIT, reported in 73 TTJ 624 (Ahd) and the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd, reported in 313 ITR 340, wherein it was held that if there were funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. He also relied on the decision of the Hon'ble Supreme Court in the case of Munjal Sales Corporation Vs CIT, reported in 298 ITR 298, wherein it was held that since the opening balance of the profits of the assessee-firm as on 1st April 1994 was Rs. 1.91 crores, and the profits were sufficient to cover the loan given to a sister concern of Rs. 5 lakhs only, the Appellate Tribunal ought to have held that the loan given was from the assessee's own funds. Therefore, it was the contention of the Authorized Representative of the assessee that as the assessee's own interest free funds available were to the tune of Rs. 251.22 crores and interest free advances given by the assessee were Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruments from which the income generated do not form part of the total income. On reply to the show-cause notice, the assessee explained that it has not incurred any expenditure to earn nontaxable income and interest paid on borrowed funds was on the amounts utilized by the assessee for the business of the assessee. In the alternative, it was also submitted that as disallowance of Rs. 69,73,973/- out of interest expenditure was made by the Assessing Officer, no further disallowance should be made u/s 14A of the Act. The Assessing Officer held that the disallowance of expenditure relating to exempt income was required to be made u/s 14A read with Rule 8D and accordingly, made a disallowance of Rs. 1,60,45,775/- in the Assessment Year 2007-08 and Rs. 2,04,30,869/- in the Assessment Year 2008-09. 14. On appeal, the CIT(A) observed that the Assessing Officer, after giving opportunity to the assessee to furnish the details alongwith supporting documents, has rejected the working given by the assessee. He observed that the Special Bench of the Tribunal in the case of M/s Daga Capital Management Pvt Ltd and others vide order dated 20.10.2008 has held that the Assessing Officer is bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee in respect of such expenditure, and therefore, the disallowance made by the AO, as per Rule 8D under section 14A was justified. The Authorized Representative of the assessee has pointed out from page nos. 11 to 13 of the paper-book for Assessment Year 2007-08 that the assessee had not claimed any income as exempt from tax. He has also pointed out from page nos. 27 and 28 of the paper-book for Assessment Year 2008-09 that no income was claimed as exempt by the assessee in its Return of Income. The Authorized Representative of the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy (P) Ltd, reported in (2014) 272 CTR 262 (Guj.)(HC), wherein it has been held that where the assessee has not made any claim for exemption of any income from payment of tax, no disallowance could be made u/s 14A of the Act. The Departmental Representative has not disputed the submission of the assessee that during the assessment years under consideration the assessee has not claimed any income as exempt from tax in its Return of Income filed. Therefore, respectfully following the decision of Hon'ble Gujarat High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of prior period income and the net disallowance was made in the statement of income. The Assessing Officer did not accept the claim of the assessee and made addition of an amount equal to prior period expense that has been reduced by the assessee. The assessee submitted that the income and expenses of prior period cannot be given different treatment for taxation. If the expenses of prior period was disallowed, the income of the earlier period cannot be taxed. The CIT(A) has observed that the submission of the assessee was not acceptable. It was clear that the expenses pertained to the previous assessment year and the expenses are to be allowed only on matching principle and therefore, the same cannot be allowed as deduction from the current year's income. The action of the assessee by reducing it from the prior period's income and disallowing the net prior period expenses was not correct. The income has to be considered separately and cannot be set off against prior period expenses. Therefore, he confirmed the action of the Assessing Officer. 24. We have heard rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no business expediency and justification. Sr. No. Name Amount 1 Atulbhai P. P. (Advance for Land) 500000 2 Chandrikaben Chudasma (Adv for land) 500000 3 Dipti Deepakbhai Shah 400000 4 Naynaben Girishkumar Shah 1000000 5 Sunderdeep Builders (Advance for land) 1600000 Total 4000000 Therefore, the Assessing Officer made disallowance for interest @ 10% of the amount advanced and made an addition of Rs. 4,00,000/- to the income of the assessee. 29. On appeal, the CIT(A) held that in the earlier assessment year 2007-08 also similar disallowance was made by the Assessing Officer and confirmed the same by his predecessor. Therefore, following the same, he confirmed the addition made by the Assessing Officer. 30. Before us, the Authorized Representative of the assessee submitted that since these advances were made out of interest free own funds of the assessee, no disallowance was warranted. However, no material could be brought before us by the AR to substantiate the above addition. 31. We find that the CIT(A) has confirmed the disallowance by following order of his predecessor passed in the case of the assessee itself in the immediately prece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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