TMI Blog2016 (7) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... to share application money and not to make any adjustment on account of interest post conversion of loan to share application money and accordingly this ground of the assessee is allowed for statistical purpose. Disallowance under section 14A - Held that:- As regards first contention that no satisfaction has been recorded we note from the assessment order that the AO has considered the explanation of the assessee and after taking into consideration the explanation he has invoked Rule 8D. Having done so, it cannot be said that the AO has not taken into consideration the explanation of the assessee. However, as regards the second contention of the learned AR that the disallowance cannot exceed the exempt income, we are in agreement with this contention. This view is supported by the judgment of the Hon’ble jurisdictional Delhi High Court in the case of Joint Investments Pvt. Ltd. versus Commissioner of Income Tax [2015 (3) TMI 155 - DELHI HIGH COURT ]. Accordingly we direct the AO to restrict the addition to the exempt income.- Decided partly in favour of the assessee. - ITA Nos. 1086 to 1091/Del/2015 - - - Dated:- 5-5-2016 - SHRI I.C. SUDHIR AND SHRI PRASHANT MAHARISHI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Lending Rate of State Bank of India. This money has been advanced in foreign currency and as such interest is to be charged as per the interest rate in foreign currency i.e. LIBOR. 7. The learned DRP did not agree with the contention of the assessee. However, it gave a part relief by holding that the interest rate be charged be only base rate and further adjusted by 150 basis point in terms of Safe Harbour Rules. On the issue of addition under Section 14A, the learned DRP confirmed the action of the AO. 8. Aggrieved by the order of the learned DRP and the final assessment order passed by the AO the assessee is in appeal before us. 9. It was contended by the learned AR that the AO was not justified in tinkering with the assessment for assessment years 2006-07 to 2008-09 as these assessments have not abated consequent to the search. The search has taken place on 21st January, 2011. No incriminating material was found during the course of the search as is evident from the assessment order. It was contended that in the absence of any incriminating material, the AO should not have made an addition. In support thereof the learned AR relied upon the order of the jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (ii) CIT Vs EKL Appliances, ITA No. 1068/2011 and 1070/2011 (iii) Parle Buiscuits P Ltd Vs DCIT (ITA No. 9010/Mum/2010) dated 11.4.2014 ITAT Mumbai (iv) All cargo Logistics Ltd Vs ACIT (2014) 150 ITD 0651 dated. 10.6.2014 13. On the issue of disallowance under section 14A made by the AO in assessment year 2009-10 to 2011-12, it was submitted by the learned AR that the disallowance has been made by the AO without recording any satisfaction. The AO has straightaway invoked the provisions of Rule 8D. In support there of the learned AR has placed reliance on the judgment of the jurisdictional Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd., (2015) 370 ITR 0338 (Del). 14. It was further submitted that in any case the disallowance under Section 14A cannot exceed the dividend income earned by the assessee company. 15. The learned DR, on the other hand, supported the order passed by the TPO as modified by the learned DRP. It was contended that the order passed by the TPO as well as the learned DRP on the issue of adjustment of interest is a speaking order. It was further contended that once the search has been initiated all the assessments get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve any jurisdiction to interfere in concluded assessments. In the present case, as stated hereinabove, the addition has been made without there being any incriminating material and in absence of pendency of assessment. In the absence of any incriminating material, as held by the Hon ble High Court, the addition cannot be made in an assessment under section 153A. Respectfully following the judgment of the jurisdictional Delhi High Court, we hold that the AO was not justified in making the addition and accordingly the addition made by the AO in the assessment years 2006-07, 2007-08 and 2008-09 are directed to be deleted. Consequently the appeals filed for these assessment years are allowed. 20. As regards assessment years 2009-10 and 2010-11 are concerned the learned DRP has confirmed the addition applying the base rate of State Bank of India plus 150 basis points. It was the contention of the learned AR that no addition can be made as the advance made was out of the EEFC account which carries no interest. Further amount advanced was for promoting its business. On this issue we are not in agreement with the contention of the learned AR. The amount having been advanced to an A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital markets (subject to the arbitrage). In regard to the question as to whether the level of interest rates in the lender s State or that in the borrower s is decisive, therefore, primarily depends on the currency agreed upon (BFH BSt.B1. II 725 (1994), re. 1 AStG). A differentiation between debt-claims or debts in national currency and those in foreign currency is normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt-claim in national currency whereas to a German borrower it is a foreign currency debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. An economic criterion for one party may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such foreign currency in which the loans have been advance. As per the details available on record during the assessment years 2009-10 and 2010- 11 assessee has advanced to its subsidiary companies as detailed below:- Assessment year Baba Global Co. (BD) Ltd. (Bangladesh) Baba Global Co. FZC Ltd. (UAE) Baba Global AG, Switzerland 2009-10 $44,944 CHF 7,56,957 CHF 40,00,000 2010-11 $57,944 CHF 98,447 CHF 50,00,000 2011-12 $77,944 (Converted to share applicable money) - CHF 50,00,000 (Converted to Share Application Money) The interest rates applicable in respect of these currencies during these years, as submitted by the learned AR, were as under:- Assessment year Currency wise LIBOR Rate USD ($) EURO( ) Swiss Franc(CHF) AY 2009-10 3.089% 4.822% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O is directed to verify the date of conversion of loan to share application money and not to make any adjustment on account of interest post conversion of loan to share application money and accordingly this ground of the assessee is allowed for statistical purpose. 23. As regards the disallowance under section 14A in respect of the expenditure incurred for earning exempt income is concerned, we note that the assessee has earned the following income in the assessment years 2009-10 to 2011-12:- Assessment Year Dividend Income AY 2009-10 ₹ 17,00,115 AY 2010-11 Rs.29,218 AY 2011-12 Rs. 4,39,358 24. Against this the AO has made disallowance as under:- Assessment Year Amount of Disallowance 2009-10 1,38,903/- 2010-11 4,84,517/- 2011-12 17,99,732/- 25. The contention of the assessee is that in the absence of any satisfaction being recoded disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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