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Casby Logistics Pvt. Ltd. Versus Dy. Commissioner of Income-Tax

2016 (5) TMI 700 - ITAT MUMBAI

Disallowance u/s 14A - Held that:- We have observed that Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ) has held that Rule 8D of Income Tax Rules, 1962 is applicable only from the assessment year 2008-09 , while the relevant assessment year under appeal is 2006-07. Section u/s 14A of the Act is applicable for the relevant assessment year and the disallowance has to be made in respect of the income which does not from part of the total .....

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uce on record cogent material/evidences to substantiate its claim that the interest free own funds are deployed for making the investments which yield tax free income and then accordingly the disallowance be worked out . The AO shall also keep in view the presumption as laid down by Hon’ble Bombay High Court in the case of HDFC Bank Limited (2014 (8) TMI 119 - BOMBAY HIGH COURT ) and also other case laws relied upon by the assessee company while de-novo determination of the issue. Needless to sa .....

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re-stated payments of PF before the due date of filing of return of income u/s 139(1) of the Act. We have observed that this issue is squarely covered by the decision of Hon’ble Bombay High Court in Ghatge Patil Transport Ltd [2014 (10) TMI 402 - BOMBAY HIGH COURT] and also Hon’ble Supreme Court in Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] in favour of the assessee company and hence the deduction is allowable with the respect to employee contribution towards PF if payment although .....

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RDER Per Ramit Kochar, Accountant Member This is an Appeal by the assessee company directed against the Order by the learned Commissioner of Income Tax (Appeals)-4, Mumbai ( CIT(A) for short) dated 09/01/2013 for the assessment year 2006-07. 2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Tribunal are as under:- 1) a) The CIT(A) has erred in confirming the disallowance of ₹ 8,39,411/- being the interest calculated at 9% on alleged interest free .....

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e Assessing Officer in as much as no evidence was brought on record either by the Assessing Officer or the CIT(A) to show that the appellant has invested borrowed funds in assets, income from which was exempt from tax or made any other expenses to earn exempt income. b) In fact, the appellant s capital and reserves of ₹ 845 lakhs were much more that the investments of ₹ 768 lakhs and hence prima facie there was no reason to make the disallowance out of interest expenses u/s. 14A of t .....

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earned Assessing Officer(hereinafter called the AO ) observed that the disallowance of assessee s claim of interest expenses was made by the AO in the assessment order passed for the assessment year 2005-06 on account of the reasons that the assessee company has not charged the interest on the loans and advances given to various parties and the AO observed that for the current year also the facts are similar whereby the assessee company has not charged interest on loans and advances given to var .....

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ged any interest: Sr. No. Name of the Party Amount 1 Ahura Transport Pvt. Ltd. 11,600 2 Aradhana Transport Pvt. Ltd. 11,600 3 Atlas Orchards Ltd. 4,500 4 Excellent Movers Pvt. Ltd. 11,100 5 Jakari Developers Pvt. LTd. 4,500 6 Jakari Port Management Pvt. Ltd. 17,501 7 Ocean Express Pvt. Ltd. 50,000 8 Swift Movers Pvt. Ltd. 11,600 9 Sky Quick Frt 1,71,000 10 M.B. Eduljee Cassinath Sons 4,22,174 11 Business Match Services Pvt. Ltd. 11,00,000 12 R.G. Khare & Co. 5,18,013 13 Sea Wheels Carriers P .....

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act Solution Pvt. Ltd. 5,00,000 29 Unitech Automobiles Pvt. Ltd. 4,800 Therefore, you are herby asked to show cause as to why the interest expenses claimed by you be not disallowed u/s. 36(1)(iii) of the Act because interest bearing funds have been diverted by you for non business purpose. The assessee company submitted that the assessee company has given the interest free advances to parties for business purposes which are in the nature of trading advances given to parties on account of commerc .....

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ing the interest free advances to the above mentioned parties and hence, the assessee company s claim of interest expenditure was disallowable in view of the specific provisions of Section 36(1)(iii) of the Act. Therefore, interest at the rate of 9% is charged on the above advances totaling to ₹ 93,26,789/- which is worked out at ₹ 8,39,411/- which was added to the total income of the assessee s company income vide assessment order dated 24.12.2008 passed by the AO u/s 143(3) of the .....

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depending upon the practice followed consistently by the Assessee. In the case, the trade advances do not carry any interest. Hence, from these advances, no interest income could be expected. Further these are not in the nature of interest free loans. These trades advances were being given on account of commercial expediency and that some of the parties had repaid the advances in the next year or have been adjusted against the bills of the party. Similar disallowance was made in A.Y. 05-06 and .....

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purposes but the assessee company failed to prove that the advances are for the business purposes. Hence, the disallowance of interest of ₹ 8,39,411/- made by the AO was confirmed by the CIT(A) vide orders dated 09-01-2013. 6. Aggrieved by the orders dated 09-01-2013 passed by the CIT(A) , the assessee company filed an appeal before the Tribunal. The assessee company contended that the money has been advanced for the business purposes being trade advances and the assessee company submitted .....

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ed in file. The assessee company submitted that during the course of assessment year 2006-07, in all advances were given to 29 parties and out of which 16 parties are same parties as were before the Tribunal in the preceding assessment year i.e. 2005-06 and which was accepted by the Tribunal to be trade advances for business purposes vide orders dated 13-11-2009 . Thus, the assessee company contended that out of ₹ 93,26,789/- advances given as on 31/3/2006, ₹ 69,23,301/- were in resp .....

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previous year and since the advances were given for business purposes being trade advances, the interest expenditure should be allowed and the AO erred in disallowing the interest of ₹ 8,39,411/- . The assessee company relied on the decision of Hon ble High Court of Bombay in Reliance Utilities and Power Limited reported in (2009) 178 taxman 135(Bombay) and decision of Hon ble Supreme Court in S.A. Builders Ltd, (2007)158 taxman 74 (SC). 6. The Ld. DR on the other hand, submitted that the .....

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tentions and perused the material on record, we have observed that the assessee company has given the advances to various parties as per the list produced in the preceding para s, aggregating to ₹ 94,16,789/- and the assessee company had paid interest of ₹ 35,51,007/- during the previous year . The assessee company has also claimed to have the interest free funds of ₹ 23.22 crores. We have also observed that the assessee company in the preceding assessment year has advanced mon .....

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for the purpose of business for commercial expediency. The AO will also take into account the decision of the Tribunal for the assessment year 2004- 05 and 2005-06 in ITA No. 69 &70/Mum/2008 vide orders dated 13-11-2009 whereby the advances to 16 parties were held to be trading advances for business purposes and disallowance of the interest was, therefore, deleted and also case laws relied upon by the assessee company. Needless to say that the AO will grant proper and adequate opportunity of .....

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been claimed exempt from taxation . The assessee company was show caused as to why disallowance was not made u/s 14A of the Act read with Rule 8D of Income Tax Rules,1962. The assessee company submitted that it has not incurred any expenditure in relation to earning the dividend income or long term capital gains and hence no amount can be disallowed u/s 14A of the Act. The assessee company has also submitted that Rule 8D of Income Tax Rules, 1962 is not applicable for the relevant assessment yea .....

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exempt income . The AO held that it cannot be said that no expenses have been incurred by the assessee company to earn exempt income and held that he is not satisfied with the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for the previous year. The AO held that the CBDT vide its notifications dated 24.03.2008 has prescribed the method for calculating expenditure in relation to exempt income by pr .....

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total disallowance of ₹ 11,82,953/- u/s 14A of the Act read with rule 8D (2) (ii) and (iii) of Income Tax Rules 1962 was made vide assessment order dated 24.12.2008 passed by the AO u/s 143(3) of the Act.. 9. Aggrieved by the assessment orders dated 24.12.2008 passed by the AO u/s 143(3) of the Act, the assessee company filed the first appeal with the CIT(A) and submitted as under:- The amount of interest amounting to ₹ 11,82,953/- .The Assessing Officer disallowed interest amounting .....

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rred on Long Term Capital Gains and Dividend Incomes. Reliance was also placed upon the decision of Vijaylaxmi Sugar Mills Ltd. v/s. CIT (1991) 191 ITR 641 (SC) where it was held that there was no evidence to show that the expenses sought to be disallowed were to facilitated the earning of dividend. It was also submitted that the formula under Rule 8D was brought in by notification no. 45/2008 dated 24.03.2008 and can be applied in the circumstances therein only after that date and this Rule 8D .....

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by the Assessing Officer as per rule 8D(2)(ii) of Income Tax Rules,1962 of ₹ 8,28,781/- appears to be reasonable and was confirmed for the disallowance by the CIT(A) vide orders dated 09-01-2013. The CIT(A) also held that disallowance of expenses of ₹ 3,54,172/- made by the AO under rule 8D (2)(iii) of Income Tax Rules, 1962 was held to be on higher side and the CIT(A) reduced the disallowance to 50% as was made by the AO and granted the relief to the assessee company of ₹ 1,77 .....

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the investment which are made are to the tune of ₹ 7.67 crores and hence own funds are utilized in making investments and the interest should not be disallowed. The assessee company relied upon the decision of the Hon ble Bombay High Court in the case of HDFC Ltd, in ITA No, 330 of 2012 and also relied upon decision of Videocon Industries Ltd v. Addl. CIT (2015) 55 taxman in 263 (Mum Tribunal) and IOT Infrastructure & Energy Services Limited v. ACIT 39 taxmann.com 195 to contend that n .....

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vant assessment year under appeal is 2006-07. Section u/s 14A of the Act is applicable for the relevant assessment year and the disallowance has to be made in respect of the income which does not from part of the total income . The assessee company has mixed pool of funds which are deployed for earning the taxable income and tax free income and it is for the assessee company to show with the cogent material/evidences that interest free funds are deployed in making investments which yield tax fre .....

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y Hon ble Bombay High Court in the case of HDFC Bank Limited (supra) and also other case laws relied upon by the assessee company while de-novo determination of the issue. Needless to say that the AO shall grant proper and adequate opportunity of hearing to the assessee company in accordance with law in compliance with principles of natural justice. We order accordingly. 12. The AO during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, on perusal of Annexure .....

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Total 86,358/- From the above it was observed by the AO that the assessee company has made belated payments of ₹ 86,358/- in respect of its liabilities towards Employee s Contribution to PF beyond the time stipulated under PF Act and as per Sec. 36(1)(va) of the Act , such delayed payment cannot be allowed as deduction and hence, 86,358/- being the delayed payment towards Employee s Contribution to PF, is disallowable and the same was added back to the total income of the assessee company .....

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the assessee company submitted that the assessee company has made the payment of Employee Contribution to PF before the due date of filing of return of income u/s. 139(1) of the Act and as per Sec. 43B of the Act, if the payments are made before the due date of filing the return of income u/s. 139(1) the assessee company is entitled for the deduction of said amount u/s 36(1)(va) of the Act read with Section 43B of the Act. The assessee company relied upon the decision of Hon ble Bombay High Cou .....

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