TaxTMI 
TaxTMI 
2016 (5) TMI 1218
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....-)4, 36, 39, 929/- 11. 04. 2014 2. First ground of appeal is about the deleting the addition of Rs. 50 lakhs made by the AO u/s. 36(1)(iii) of the Act. During the assessment proceedings, the AO found that the assessee had shown interest expenditure of Rs. 15. 10 crores and interest receipt of Rs. 8. 90 crores, that it had made investment shares of companies. He held that the assessee had deployed huge interest free funds in interest free investment, that it did not result in any income. He asked the assessee to explain as to why the excess interest paid over interest received should not be disallowed. In response, the assessee stated that it was a NBFC, that it had to follow the directions of RBI, that it had made provisions for Non-Performing Assets (NPA), that out of total loss of Rs. 160. 30 crores loan of Rs. 31. 97 crores was classified as NPA, that it had given advance of Rs. 2. 82 crores against the share application money to New India Broadcasting Private Ltd. (NIBPL), that the project of that company had not taken off, that it had become doubtful of recovery, that when the principal had gone bad interest did not accrue, that there was no chance of recovery of int....
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....t which would yield income in form of dividend, that the investment had been made for purpose of earning income, that interest expenditure incurred for earning income had to be allowed u/s. 36 (1) (iii) of the Act. Finally, he deleted the disallowance made by the AO. 4. During the course of hearing before us, the Departmental Representative (DR) stated that issue could be decided on merits. The Authorised Representative (AR) supported the order of the FAA. After considering the rival submissions we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. The AO had made the disallowance on the basis that in the earlier assessment year his predecessor had made the identical disallowance. The FAA had examined the assessment records of the earlier years and had found that the- then-AO had not made any disallowance under the head interest attributable to share application money of the sister concern. Thus, the whole base of making the addition goes. Therefore, confirming the order of the FAA first ground of appeal is decided is the AO. 5. Next ground is about deleting the disallowance of Rs. 3. 05 crores made u/s. 37 (1) of the Act, being noti....
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.... consideration, that the loans were taken in the earlier years, that the borrowed funds were utilised by the assessee for the purpose of business i. e. it had given loans and advances in the capcity of a NBFC, that the interest expenses on the borrowed funds was required to be allowed u/s. 36 (1) (iii) of the Act, that the AO had made the disallowance is u/s. 37 (1) of the Act, that the provisions of section 37(1)would apply to any expenditure which was not covered by the provisions of section 30-36 of the Act, that the interest expenditure incurred by the assessee was allowable u/s. 36(1)(iii), that the provisions of section 37 of the Act were not applicable. He further held that even u/s. 37 the expenditure was allowable because the expenditure was incurred wholly and exclusively for the purpose of business, that loans and advances were given in the regular course of business, that the loans had become NPAs, that the assessee did not provide interest thereon, that this was normal practice as per the RBI guidelines, that the disallow -ance made by the AO amounted to addition of notional interest income, that the provisions of Act did not allow taxing such notional income. Finally,....
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....roceedings, the AO found that assessee had made invest -ment in equity shares of Rs. 48. 43 crores, that it had received dividend of Rs. 92. 64 lakhs, it had claimed exemption for the said incoem, that it had incurred interest and financial expenses of Rs. 15. 10 crores. He directed the assessee to explain as to why proportionate expenses should not be disallowed u/s. 14 A of the Act. n its reply, the assessee stated that only direct expenses incurred for earning exempt income could be disallowed u/s. 14A of the Act, that disallowance could be made as per the method prescribed by rule 8D of the Income Tax Rules, 1962 (Rules), that it had made investment in earlier years, that there was no direct nexus of loan taken with the investment made, that out of total expenditure Rs. 42. 57 lakhs was related to share application money given to Digital Media and one more entity, that the said amount had already been disallowed u/s. 36 (1)on its own in the computation of total income, that share application money given to New Media was considered doubtful, that disallowance u/s. 36(1) was not considered, that it had also given share application money to its sister concern namely Sun City Proje....
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....owed funds for making investment could not be ruled out, that some expenditure was attributable to investment activity and consequently earning of exempt income, that the assessee had not offered any disallowance u/s. 14A in the return of income, that the provisions of section 14A(2) were applicable, that the assessee itself had offered disallowance of Rs. 2. 33 crores during the assessment proceedings, that argument made by the assessee about investment made in associate concern and non-applicability of section 14A in the case under consideration was not acceptable, that the assessee had made investment in shares of unquoted companies, that on sale of shares of such companies the assessee would be earning exempt dividend, that those investments were required to be considered for disallowance u/s. 14A of the Act, that holding of shares as stock in trade was not a material fact for deciding the disallowance, that administrative and managerial expenses had to be worked out as per the formula provided in sub-clause (iii) of Rule 8D. Finally, the FAA upheld the order of the AO. 11. During the course of hearing before us, the AR argued that the total investment made by the assessee sto....
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....ication money and unsecured loans and others was Rs. 1, 14, 44, 54, 709/-. Therefore it has to be presumed that investments were made out of the own fund and not from the borrowed funds. We find that in the case of HDFC Bank Ltd. (67taxmann. com 42) the Hon'ble Bombay High Court has held that when there were sufficient own funds there was a presumption that investment in tax-free securities was made out of own funds. In the case of Pan India network infravest Pvt. Ltd. (ITA/3378/Mum/2013-AY. 2009-10, dated11/05/016), we have held as under : "5. We have heard the rival submissions and perused the material before us. There is no doubt that the assessee had not earned exempt income during the year under consideration, so, in our considered opinion, no disallowance can be made u/s. 14A of the Act. We find that in the case of M/s Gateway Distriparks Ltd. (supra), identical issue was adjudicated by us, as under: "3. The next ground pertains to deleting the disallowance made u/s 14A of the Act ignoring the ratio of the Tribunal in Cheminvest Ltd. (121 ITD 318)(Del. ). The crux of argument on behalf of the assessee is that no income was earned by the assessee and merely hypothetical d....
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....favour of the assessee. ITA No. 4416/M/2014-AY. 2009-10: 13. The effective Ground of appeal is about deleting the addition of Rs. 7. 74 crores made by the AO under section 36(1)(iii) of the Act. We find that the issue is identical to the issue raised by the AO in the earlier year. Following our order for the previous year, we dismiss the effective ground raised by the AO. ITA No. 4216/Mum/14-AY. , 2009-10: 14. The solitary Ground of appeal is about valuation loss treated as speculation loss. During the assessment proceedings, the AO directed the assessee to furnish details of opening and closing stock of equity shares, loans and advances received and given interest payment. After considering the details he heldd that there was diminution in the value of closing stock of Rs. 4. 12 crores(OB-Rs. 29. 60 cr-CB-Rs. 25. 48cr. ). He directed the assessee to explain the reason of the loss reported in the P&L account. The assessee stated that stock was valued at cost of market price which ever was low, that the stock was part of the trading stock, that loss due to diminution in value was allowable. However, the AO did not agree with the assessee and held that diminution in stock value h....