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2016 (3) TMI 1069

Disallowance u/s 14A r.w.r 8D - Held that:- The facts are proved by the increase in reserve and surplus over the years which were at ₹ 414 crores as on 31.3.2008 against the investment in subsidiaries which stood ₹ 319.43 crores as on 31.3.2008. We also note that the assessee had taken loans from Financial Institutions amounting to ₹ 722.24 crores, out of which the working capital loan ₹ 258.79 crores and remaining pertains to term loans for the specific purposes. The AO .....

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iary company out of commercial expediency. In the case of Reliance Utilities and Power Ltd (2009 (1) TMI 4 - BOMBAY HIGH COURT ), The Hon'ble Court has held that the assessee has its own funds and simultaneously has borrowed interest bearing funds the presumption is that the advance of money is out of own funds and not out of interest bearing funds. We, therefore, respectfully following the ratio laid down in the above decisions supra confirm the order of ld. CIT(A) on this issue. - Decided in f .....

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ystallization of the liability and also the disallowance cannot be made merely on the ground that account maintained in the system of accounting and relates to the transactions of the previous year. In our opinion the true profits and loss of the assessee could only be determined if the expenses are allowed. Moreover, if these expenses are not allowed in this year, they are liable to be set off from the profit of the year ended 31.3.2006 related to the assessment year 2006-07. We, therefore, uph .....

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Shri Manjunatha Swamy For the Respondent : Shri J P Bairagra ORDER Per Rajesh Kumar , AM These appeals filed by the revenue are directed against the separate orders passed by learned CIT(A) in their respective hands. Both these appeal are related to the assessment year 2007-08 and 2008-09. Since some of the issues urged in these appeals are identical in nature, they were heard together and are being disposed of by this common order for the sake of convenience. 2. First we shall take up the appea .....

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mstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of contingent liability of ₹ 279246564/- made by the AO- u/s 43(5) (d) of the Act inspect of Marked to Market (MTM) loss and instead holding that the said loss is allowable as covered u/s 43(5)(a) of the Act" 2.1 The facts of the case in brief are that the assessee filed its return of income on 30.9.2009 declaring a loss of ₹ 57,25,03,911/- under the normal provisions of the Act and book profit u/ .....

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admissible. Accordingly, the AO, framed the assessment u/s 143(3) of the Act vide order dated 16.9.2011 at ₹ 15,66,15,825/- under the normal provisions of the Act and at ₹ 88,42,17,620/- under the provisions of Section 115JB of the Act. Aggrieved by the order of AO, the assessee preferred appeal before the ld. CIT(A), who in turn allowed the appeal on various grounds raised by the assessee. The ld. CIT(A) held that the provisions of section 14A read with Rule 8D were applicable to th .....

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which the assessee's stake holding was ranging between 51% to 100%. The Reserves and Surplus of the assessee increased from 54.66 lakhs in the financial 2000-01 to ₹ 41414.24 lakhs in the financial year 2007-08. Similarly, the investment in subsidiaries companies which were at ₹ 17.89 crores in financial year 2001-02 had gone up to ₹ 319.44 crores in financial years 2007-08. The ld. CIT(A) deleted the addition made by the AO on account of interest on the ground that the as .....

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he ITA No 8373/Mum/2010 AY 2005-06 & ITA No 6121/Mum/2011 wherein a similar decided in favour of the assessee. The counsel submitted that the total investment at the year end in the equity shares and debentures were at ₹ 330.59 crores which were inclusive of debentures purchased of ₹ 11.16 crores and interest thereon was duly disclosed in the income of the assessee. So far as the investment in shares amounting to ₹ 319.43 crores were concerned the same were into shares of s .....

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31.3.2008 as against ₹ 96.51 crores as on 31.3.2001 which proved that the investment in the subsidiaries companies were made out of assessee's own funds and accruals over the years and not out of loan funds. The ld. Counsel heavily placed reliance on the various decisions some of which are as follows:- a) CIT Vs Hero Cycles Ltd(2010) 323 ITR 518 (P&H) b) Shoppers Stop Ltd Vs ACIT - dt 30.08.2011 c) CIT Vs HDFC Bank Ltd (2014) 366 ITR 505 d) CIT V/s Reliance Utilities and Power Ltd .....

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e interest debited to the profit and loss account amounting to ₹ 94.35 crores and worked out the disallowance accordingly. In our opinion, the ld CIT(A) had rightly deleted the disallowance on account of interest under rule 8D(2)(ii) of the Rules and rightly upheld the disallowance to the tune of ₹ 0.5% of the value of investment which comes to ₹ 1,35,14,428/- being 0.5 % of ₹ 270.28 crores by following the decisions of the earlier years in the case of the assessee wherei .....

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cordingly, the AO disallowed a sum of ₹ 2,42,24,011/- on account of diversion of interest bearing loans to the subsidiary companies of the assessee which were held to be advances by the assessee not out of commercial expediency and for genuine business needs but merely to divert the interest bearing funds of the companies. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A) who deleted the addition by observing that the secured and unsecured loans of th .....

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holding were to tune of 51% to 100% share. It was also submitted that these subsidiaries were engaged in the business of installation of Windmills sold by the assessee company. The ld AR for the assessee further submitted that the interest free funds given to subsidiary companies were not utilized for any non-business purpose or further personal purposes of the directors of the companies but used for the purposes of business and were given purely for commercial exigency and therefore interest t .....

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iven were for the purpose of installation of wind mill which were used by the assessee company for transmitting the power generated by the wind mill to the ultimate end user to whom it was sold. Thus, the advances were purely out of business consideration and commercial expediency. Once, the windmill is installed by the subsidiary company, the loan taken from the assessee were repaid by receiving loans from banks and other financial institutions. Finally the ld. AR prayed that in view of the dec .....

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earing funds and lent to the sister concern without charging any interest and without charging any interest on the said advances, the advance is liable to be disallowed u/s 36(1)(iii) of the Act. Further, in the instant case, the assessee's business expediency is proved beyond doubt that the entire interest free advances were given to the subsidiary company out of commercial expediency. The case of the assessee also squarely covered by The decision of the Hon'ble Apex Court rendered in t .....

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business'. It has been consistently held in decisions relating to section 37 that the expression 'for the purpose of business' includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. The High Court as well as the Tribunal and other income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authoritie .....

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ned judgments of the High Court, the Tribunals and other authorities are set aside and the matter is remanded to the Tribunal for afresh decision, in accordance with law and in the light of the observations made above. It is made clear that it is not that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the am .....

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the above decisions supra confirm the order of ld. CIT(A) on this issue. 4. The Ground No.4 is against the deletion of loss of ₹ 27,92,46,564/- by the ld. CIT(A) made by the AO u/s 43(5)(d) of the Act on account of M to M losses. 4.1 During the course of scrutiny proceedings, the AO found that the assessee had claimed a sum of ₹ 28,69,53,073/- in the profit and loss account under the head "Cash P/L on Options" which was on account of "Marked to market" loss on op .....

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oodwords Governor India Pvt.Ltd. (2009) 312 ITR (SC) 254. The ld. CIT(A) deleted the disallowance on the ground that the assessee was engaged in the business of manufacturing,sale and trading of wind energy, converters (Wind Mill), accessories and parts/components and all activities incidental and related thereto and used to import raw materials for manufacturing of its products from the holding company and other suppliers in Europe. During the year the assessee imported the raw material from it .....

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ting Standared-11 of ICAI which provided for recognizing the gain or loss on the foreign exchange contract. The practice of the assessee had been accepted by the department in the earlier and succeeding years. 5. The ld DR on the other hand relied heavily on the order of AO and prayed for upholding the same and setting aside the order of CIT(A) in view of instruction no 17/2008 dated 26.11.2008 which provided for disallowance of losses of notional and contingent nature. The ld DR submitted that .....

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ness loss and were not a contingent or notional loss. In order to cover the risk of the fluctuation in foreign currency rate, the assessee had entered into foreign exchange foreign exchange forward contract ₹ 28,69,53,073/- pending maturity at the year end on which the assessee revalued and re-stated at the current exchange rate prevailing at the end of the year. The ld counsel strongly placed reliance on the following decisions of Tribunal in which the decision of hon'ble Supreme Cour .....

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he yearend based on the foreign exchange rate pertain to AS-11 issued by he ICAI and in the year 2005-06 and 2006-07 the assessee earned ₹ 19.71 crores and ₹ 2.66 Crores were credited to the profit and loss account which were accepted by the department. 7. We have considered the rival submissions and perused the materials on records and after going through the decisions relied upon by the ld.AR find that assessee had recognized a loss of ₹ 27,92,46,564/- on account of provision .....

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lowable and further held (i) a binding obligation is accrued against the assessee the moment it entered into forward foreign exchange contract(ii) consistent accounting method followed by the assessee to account for the forex gain and loss at the yearend based upon the current exchange rate cannot be disregarded(iii) the liability is said to have crystallized when a pending obligation on the date of balance sheet is determinable with reasonable certainty(iv) as per AS-11 when the transaction is .....

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ntract for foreign exchange is allowable afgter following the decision of special bench in the case of Bank of Bahrain & Kuwait. In the case of CIT Vs Pashupati Capital Services Pvt the Honble Bombay High Court has held on reference of substantial question of law "Whether the mar to market loss in future and options can be allowed to the assessee who is dealing in fianancial market on account of closing of the year in derivative transactions" that after perusing the reasoning of th .....

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utariya Gems Pvt. Ltd. in 3361/Mum/2013. Therefore, we have no hesitation in setting aside the order of Ld. CIT(A) and in directing the AO to delete the addition of ₹ 2,59,623/-. Ground No.2 is allowed." 8. In view of the facts of the assessee and various judicial decisions of the coordinate benches following the decision of apex court in the case of Woolward Governor India Pvt. Ltd(supra) and special bench decision in the case of Bank of Bahrain and Kuwait(supra), we are of the consi .....

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ct that the bill dated 25.10.2005 raised by the vendor showed that these expenses had crystallised in the preceding year; 3. "On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance of ₹ 23,47,67,605/- u/s. 14A of the Act to the extent of ₹ 10,00,000/- without appreciating the fact that the AO is duty bound to determine the expenditure disallowable u/s 14A even if no dividend is yielded on investment"; 4. "On the facts .....

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proceedings found that a sum of ₹ 12,06,95,137/- towards repairs and maintenance were debited to the profit and loss account. Out of which ₹ 18, which relates to the earlier years and added the same to the total income of the assessee. The ld. CIT(A) deleted the addition on the ground that the said expenses pertaining to current year as these were utilized during the year by holding that those expenses relates to the earlier years but the same were crystallized when the bills were re .....

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d the rival submissions and perused the record. We are in agreement with the finding of the ld.CIT(A) that liability for the bills for fees paid to M/s L.E.Dchez of ₹ 6,61,200/- was crystalised during the year as these bills were received late and payment could not be approved and booked during the year ended on 31.3.2006. The ld. CIT(A) also relied on the judgment of the Hon'ble Gujarat High Court in the case of Saurashtra Cement and Chemicals Ltd V/s CIT (213 ITR 523) and Hon'ble .....

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ccount of repair and maintenance of furniture. The AO noticed that the assessee vide Bill No.6, dated 25.10.2005 for ₹ 12,83,864/- was claimed by the assessee during the year it is pertains to the prior period expenses and should not be allowed as per the mercantile system of accounting. The ld. CIT(A) deleted the addition after calling the remand report from the AO which stated that the amount of ₹ 12,83,864/- was disallowed being prior period expenses and during the course of reman .....

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llowed the same. The ld. DR prayed that the order of AO be upheld and the order of ld. CIT(A) be set aside. 11.2. Per contra, the ld. AR submitted before us that the assessee had carried out heavy repairs to furniture, POP and painting work etc which were damaged due to heavy rain in 2005 and the bills were received and settled during the year and thus, the same was booked in the current year and the ld. AR further submitted that the AO has no basis to disallow these essential expenses incurred, .....

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d from the said records that the said bill could not be accounted for in the year to which it pertained as it was received late and at the year end it could not be possible to estimate the liability with reasonable degree of accurancy. The bill was received in the subsequent year and the CIT(A) has recorded the finding of facts that the crystallisation had taken placed during the year and pertained to the current year and AO had wrongly disallowed the same. We, therefore uphold the order of ld. .....

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