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2015 (4) TMI 884 - ITAT AHMEDABAD

2015 (4) TMI 884 - ITAT AHMEDABAD - TMI - Dis-allowance of interest paid on borrowings u/s 36 - Interest free advances given to various parties - Direct nexus between the interest bearing loan taken by the assessee and the interest free advance given - Dis-allowance of expenditure u/s 14A - No claim for exemption of any income from payment of tax - Levy of interest u/s 234 of Income Tax Act, 1961 - Issue of double taxation on account of prior period income - Addition u/s 41(1) of Income Tax Act, .....

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ppeal. The Authorized Representative of the assessee has brought no material to controvert the above findings of the CIT(A). The Departmental Representative also could not bring any material before us to show that the finding of the CIT(A) in the case of the assessee in the Assessment Year 2005-06 was reversed in an appeal by any higher authority. In the above circumstances, we do not find any good reason to interfere with the order of the CIT(A) which is hereby confirmed and this ground of the .....

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ee has relied on the decision of the Hon’ble Gujarat High Court in the case of Corrtech Energy (P) Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT], 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 f .....

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consequential and accordingly dispose of this ground of appeal of the assessee.

Issue of double taxation on account of prior period income - We find that it is not in dispute that ₹ 30,46,655/- was income of prior period. In our considered view, on the same analogy on which expenses of prior period is not allowable, the income of prior period also cannot be brought to tax for the year under consideration. The lower authorities in the garb of disallowance of gross amount of prior .....

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of ₹ 30,46,655/- for computing the total income of the year under consideration. We, therefore, delete the disallowance of ₹ 30,46,655/- and allow the grounds of the appeal of the assessee.

Adhoc disallowance out of interest expenses - 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 preceding year. The AR brought no material to controvert the above findings of the CIT .....

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the absence of any material to show that the liability in question ceased to exist during the year under consideration or any benefit was received by the assessee during the year under consideration, we find no error in the order of the CIT(A), which is confirmed, and the ground appeal of the Revenue is dismissed. - Decided against the revenue. - ITA No. 2315/Ahd/2010, ITA No.2663/Ahd/2010, ITA No.3235/Ahd/2011, CO No.305/Ahd/2010 - Dated:- 27-3-2015 - Shri Shailendra Kumar Yadav And Shri N.S. .....

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f Income-tax (Appeals)-XIV, Ahmedabad dated 30.11.2011. CO No.305/Ahd/2010 is filed by the assessee for Assessment Year 2007-08. 2. We first take up the appeals of the assessee. 3. The Authorized Representative of the assessee submitted that the assessee has filed amended-cum-additional grounds of appeal for Assessment Year 2007-08 vide its letter dated 17.01.2013 which should be considered and decided by the Tribunal. The Departmental Representative had no objection to admitting the amended-cum .....

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the Assessing Officer observed that the assessee had paid interest on working capital amounting to ₹ 11,96,81,912/-. From the details furnished by the assessee, he found that the assessee had advanced a sum of ₹ 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 4,25,00,00 .....

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ending in appeal before the CIT(A). The Assessing Officer observed that pending of appeal before the CIT(A) does not change the nature of interest free advance to various parties and accordingly made disallowance of interest of ₹ 69,73,973/-. 7. Before the CIT(A), it was argued that the Assessing Officer has not proved the nexus between the utilization of borrowed funds by the assessee for non-business purposes and therefore, the Assessing Officer was not justified in making estimated disa .....

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advance, it was irrelevant that the assessee had sufficient interest free funds for making interest free advance. The assessee had not established by giving evidences that the advances were given for business purposes or for any commercial expediency. The CIT(A) observed that as the facts in the year under appeal are identical to the facts of the Assessment Year 2005-06, the CIT(A) following the order of his predecessor for Assessment Year 2005-06, confirmed the disallowance made by the Assessin .....

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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 Suprem .....

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s the assessee s own interest free funds available were to the tune of ₹ 251.22 crores and interest free advances given by the assessee were ₹ 5.07 crores, following the above decisions no disallowance of interest could be made. 10. On the other hand, the Departmental Representative supported the order of the CIT(A). 11. We find that in all the above three cases relied upon by the Authorized Representative of the assessee, the disallowance was made by the Assessing Officer without es .....

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facts of the above cases, in the instant case the CIT(A) has recorded a finding to the effect that in the assessment of Assessment Year 2005-06 the Assessing Officer has established a direct nexus between the interest bearing loan taken by the assessee and the interest free advance given by the assessee which was not for its business purposes. The CIT(A) has followed its own order passed in the case of the assessee in the Assessment Year 2005-06 for confirming the disallowance made in the year .....

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of the appeal of the assessee is dismissed. 12. Ground No.2 of the assessee s appeal in Assessment Year 2007-08 and Ground No.1 of the assessee s appeal in Assessment Year 2008-09 are directed against the order of the CIT(A) confirming the disallowance of expenditure of ₹ 1,06,45,775/- in Assessment Year 2007-08 and ₹ 2,04,30,869/- in Assessment Year 2008-09 u/s 14A of the Act read with Rule 8D of the IT Rules. 13. The brief facts of the case are that the Assessing Officer observed t .....

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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 ₹ 1,60,45,775/- in the Assessment Year 2007-08 and ₹ 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 detai .....

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under section 14A was justified. Further, the CIT(A) observed that the contention of the assessee that as interest disallowance was made by the Assessing Officer on account of funds not used for business purpose and therefore, no disallowance should be made u/s 14A of the Act, he was not in agreement with the contention of the assessee as it was not mentioned in Rule 8D that such adjustment has to be made before computing the disallowance. 15. Before us, the Authorized Representative of the asse .....

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of CIT vs. Corrtech Energy (P) Ltd, reported in (2014) 272 CTR 262 (Guj.)(HC), has 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. Therefore, he submitted that no disallowance u/s 14A could be made in view of the decision of the Hon ble Gujarat High Court. 16. The Departmental Representative, on the other hand, relied upon the orders of the lower authorities. 17. We have heard the rival submis .....

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Ltd. (supra) wherein it was held that the AO was bound to adopt Rule 8D for making disallowance under section 14A where he is not satisfied with the correctness of the claim 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 e .....

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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 Corrtech Energy (P) Ltd (supra), we delete the disallowance of expenditure made u/s 14A read with Rule 8D of ₹ 1,60,45,77 .....

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e hold that charging of interest is consequential and accordingly dispose of this ground of appeal of the assessee. 20. Ground No.2 of the assessee s appeal in Assessment Year 2008-09 is directed against the order of the CIT(A) in confirming addition of ₹ 30,46,655/- being income of prior period. 21. Ground No.3 of the assessee s appeal for Assessment Year 2008-09 is directed against the order of the CIT(A) on the ground that the disallowance made by the Assessing Officer already takes car .....

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y had shown prior period expenses at ₹ 1,87,58,019/- out of which the assessee reduced an amount of ₹ 30,46,655/- stating it to be credit entries. The Assessing Officer observed that, as the assessee was following mercantile system of accounting, it had not been able to prove that the said liability was crystallized during the year and therefore, the claim of the assessee with regard to netting of prior period expenses with prior period income was not acceptable; and accordingly made .....

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od 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 .....

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of the case are that the assessee added ₹ 1,57,11,364/-as net prior period expenses debited in profit & loss account in computing its total income. The AO observed that net prior period expenses of ₹ 1,57,11,364/- is comprised of two elements viz. prior expenses of ₹ 1,87,58,019/- and prior period income of ₹ 30,46,655/-. According to the AO, the entire prior period expenses of ₹ 1,87,58,019/- is not allowable to the assessee as deduction, as the assessee s syst .....

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t to tax for the year under consideration. The lower authorities in the garb of disallowance of gross amount of prior period expenses, has in fact brought to tax prior period income for the year under consideration. No material has been brought before us to show that how and why the prior period income of ₹ 30,46,655/- is taxable in the year under consideration, when the system of accounting of the assessee is mercantile. Therefore, in our considered view, when the gross amount of prior pe .....

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est paid. 28. The brief facts of the case are that the Assessing Officer observed that from the perusal of the Schedule 20 of the balancesheet, that the assessee had paid interest on working capital amounting to ₹ 18,86,80,017/-. The Assessing Officer required the assessee to provide details of interest payments and advances made. From the details, he found that the advances made to following parties were for capital expenditure or otherwise there was no business expediency and justificati .....

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sallowance 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 th .....

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ke up Revenue s appeal 33. Ground No.1 of the Revenue s appeal for Assessment Year 2007-08 is directed against the order of the CIT(A) deleting the addition of ₹ 73,623/- made u/s 41(1) of the Act. 34. The brief facts of the case are that the Assessing Officer asked the assessee to furnish the ageing analysis of the sundry creditors having outstanding credit balance for the last 3 years. He observed from the details furnished by the assessee that an amount of ₹ 73,623/- was still out .....

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