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2016 (9) TMI 1208

that the admitted borrowings had never been utilised for investments to earn exempt income, either by preparing or producing separate account of expenditure or to substantiate how much of the composite expenditure incurred was in relation to the exempted income. In the absence of any evidence on this aspect matter cannot be decided merely on the statement made by the assessee that they had separate own fund utilised in the investment or that the borrowings with which the DPSC Ltd. shares were purchased were fully discharged by 2005-06 and 2006-07 so that no interest remained payable in the FY 2007-08 cannot be accepted. Unless on facts we are convinced that either all these things should have had happened, it is not possible for us to give a finding that at relevant point of time the assessee did not utilize any borrowed funds for investment to generate the exempt income. Equally it is not possible for us to give a finding that the source of purchasing the shares in DPSC Ltd. was discharged prior to the FY 2007-08, as such, no expenditure towards interest on that aspect could have been incurred by them. We, therefore, find in these set of facts and circumstances that the finding of .....

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s in Calcutta High Court, the cases were disposed of in the FY 2007-08 but the legal experts sent its bills only in the FY 2008-09, as such, such a liability could not be crystallised during the FY 2007- 08 and it is only on receipt of the bills the liability was crystallized and by that time the books of account were closed, as such, in the books of account for the year 2008-09 they are entered as prior period expenses. However, the AO was unmindful of this fact and disallowed such expenses but rightly corrected by the Ld. CIT(A) holding that the liability for the payment to the advocates crystallized during the period relevant to the AY 2008-09 and as such, a sum of ₹ 31,55,362/- was to be allowed as expenditure pertaining to AY 2008-09 and the bills relating to ₹ 8,10,657/- though issued in the AY 2009-10 but the services were rendered during the AY 2008-09 incurring liability, as such, the assessee had an option to create the provisions for the payment of the same or may debit exact amount on the basis of bills received immediately in the next FY. This finding of Ld. CIT(A) is well considered one and we do not see any illegality or irregularity in it - Decided again .....

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; 84,52,516/-, ₹ 89,000/- towards club membership, ₹ 1,36,49,714/- towards written off claim, ₹ 41,39,764/- towards prior period legal expenses, ₹ 13,13,117/- claimed towards advances written off, ₹ 28,68,900/- on the ground of non-deduction of TDS on certain payments, ₹ 1,41,216/- towards audit expenses disallowed in the earlier year and ₹ 1,51,942/- disallowing donation. 4. As against this, the assessee carried the matter in appeal before the CIT(A), who by way of impugned order confirmed the additions u/s. 14A of the Act read with Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the Rules ) towards club membership fees, audit expenses disallowed in the earlier year and deleted the addition made by the AO basing on special expenditure to the tune of ₹ 1,36,49,714/-, prior period legal expenses to the tune of ₹ 49,39,764/-, advances written off of ₹ 13,13,117/-, amount towards which TDS was not deducted to the tune of ₹ 28,68,900/- and donation to the tune of ₹ 1,51,942/-. 5. Challenging the deletion of the legal expenses of the prior period to the tune of ₹ 41,39,764/- and advances written o .....

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even though the TDS was duly deducted and deposited by the Cross objector into the account of Central Government in the year under appeal and accordingly claimed in the return of income. 6. That, your cross objector begs your leave to urge any additional ground of appeal or to modify any ground of appeal before or at the time of hearing. 7. We have heard Ld. DR. None appeared on behalf of the assessee in spite of opportunities given. In these circumstances, we find no other option but to proceed on the basis of the arguments advanced by the Ld. DR and the material available on record. It is the argument of the Ld. DR that the Ld. CIT(A) held in deleting ₹ 41,39,764/- being payment made relating to earlier and prior period and a sum of ₹ 6,60,101/- under the head advance written off in respect of the amount of tax recoverable from Government Department. Basing on the grounds and the contentions of the Ld. DR as well as the objections raised by the assessee to the additions before the Ld. CIT(A) as we could delineate the same from the order of Ld. CIT(A), the following issues are emanating for consideration: (i) Are the authorities below justified in making an addition of .....

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d with Rule 8D(2)(iii) of the Rules, aspects relating to the management expenses are not adverted to by us. 9. Ld. CIT(A) having considered the books of account of the assessee, Tax Audit Report and other relevant matter found that as on the date of investment the assessee had paid interest on huge borrowings and there was no direct investment from any exclusive capital funds having any direct nexus of its origin and being invested as investments earning exempted income. The Ld. CIT(A) satisfied himself that the offering of ₹ 2 lacs by the assessee was without any basis and no documents supporting the same are produced. As a matter of fact, as rightly observed by the Ld. CIT(A) there may not always be a direct and immediate nexus between any capital or the borrowing funds with the investments. It cannot be ruled out that the loans taken for the purpose of capital expenditure for purchasing machinery will not yield any income investible for earning any exempt income. What is initially a capital expenditure with the borrowed funds could generate, in the process of manufacturing and sale of goods, the income that could be invested for generating the exempt income. It is for the .....

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Ltd. Vs. ITO reported in (2009) 121 ITR 318 (Del)(SB); v) Sonata Information Technology Ltd. Vs. DCIT reported in 2012-TIOL-721- ITAT-MUM: vi) Sanchayita Mercantile (P) Ltd. Vs. ACIT (2008) 25 SOT 57 (Mum) and vii) CIT Vs. RKBK Fiscal Services Pvt. Ltd. (2013)-TIOL-188-HC-Kol-IT and stated that it is for the assessee to state the source of investment to earn exempt income by production of materials that such investments were made with the funds available in the hands of the assessee at the relevant point of time without taking the benefit of any loan. 11. As a matter of fact, it is the finding of the Ld. CIT(A) that the assessee failed to produce cogent material before him to show that they have sufficient funds in their hands at the time of the alleged investments of funds or that the admitted borrowings had never been utilised for investments to earn exempt income, either by preparing or producing separate account of expenditure or to substantiate how much of the composite expenditure incurred was in relation to the exempted income. In the absence of any evidence on this aspect matter cannot be decided merely on the statement made by the assessee that they had separate own fund .....

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their family members or personal friends etc. merely because the assessee says that it has a potentiality to expand the business avenues, in a routine manner, such an expense cannot be allowed to be deducted. Hence, we find it necessary to direct the Ld. AO to verify this fact with reference to the material to be produced by the assessee and to give a finding as to the tax liability of the assessee in respect of the expenditure incurred to secure the access to the club. We, therefore, set aside the finding of the lower authorities on this aspect and restore this issue for fresh adjudication of the Ld. AO. This ground of Cross Objection of assessee is allowed for statistical purposes. Issue No. (iii) 13. Now coming to the claim of the assessee in respect of ₹ 1,41,216/- u/s. 40(a)(ia) of the Act towards audit fee is concerned, the assessee company booked liability for audit fee payable to the auditors for audit of accounts of the company for the FY 2006-07 and tax at source was required to be deducted at the time of payment or credit whichever was earlier. However, no such tax deducted by 31.03.2007, as such, it was disallowed u/s. 40(a)(ia) of the Act for the AY 2007-08. How .....

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AY 2009-10 but the services were rendered during the AY 2008-09 incurring liability, as such, the assessee had an option to create the provisions for the payment of the same or may debit exact amount on the basis of bills received immediately in the next FY. This finding of Ld. CIT(A) is well considered one and we do not see any illegality or irregularity in it. We, therefore, confirm the same and dismiss the ground no. 1 of appeal of revenue. Issue No. (v): 15. Now coming to the disallowance of advances written off amounting to a total of ₹ 13,13,117/- of which the credit from Govt. Departments is a part, is concerned, the Ld. CIT(A) discussed this in the light of the written submissions made by the assessee and recorded a finding that the assessee written off this amount being irrecoverable u/s. 36(1)(vii) of the Act and they have not received tax credit certificates relating to Sales Tax, Service tax and work contract tax. The Ld. CIT(A) was convinced himself with the explanation of the assessee that it is a business loss being the payment of advance in ordinary course of business. In these circumstances, the Ld. CIT(A) deleted the addition. On this score, we do not find a .....

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