TMI Blog2017 (3) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court in the case of S. A. Builders[2006 (12) TMI 82 - SUPREME COURT] the onus is upon the assessee to prove that the interest free advances to its sister concern was given on account of commercial expediency. If the assessee is not able to establish these facts, the expenditure on disallowance of interest payment on the borrowed funds can be made. During the course of hearing, a specific query was raised to place some evidence that the interest free advances were given on account of business expediency, but nothing has been placed before us. Under these circumstances, we are constrained to hold that the interest free advances were not given to subsidiary on account of business expediency. Therefore, the AO has rightly made 12% as disallowance out of interest free advances. Disallowance of rent paid under section 37 - Held that:- This ground is covered by the order of the Tribunal in the case of assessee’s sister concern wherein held that the expenditure incurred as rent on maintenance of guest house at Delhi is allowable. Disallowance of claim of goodwill, license fee under the head “legal and professional charges” paid to its Director - Held that:- Undisputedly, during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14A of the act is correct and justified. 3. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that invoking the provisions of section 14A of the act is not automatic. 4. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that as per the provisions of section 14A(2) of the act, the provisions could be invoked only when having regard to the accounts of the appellant, the Assessing Officer is not satisfied with the correctness of the claim of the appellant in respect of such expenditure relatable to income which do not form a part of total income. 5. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that in the absence of any such satisfaction in regard to the expenditure claimed in the books of account, under law the Assessing Officer could not have invoked the provisions of section 14A of the act. 6. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of ₹ 1,10,87,925/- out of the finance charges invoking the provisions of section Rule 8D(2)(ii) of the Rules. 7. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total disallowance made exceeds the expenditure claimed by the appellant and under law the disallowance is warranted out of the expenses claimed and therefore the disallowance cannot exceed the expenditure claimed. 15. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the investments in subsidiaries are in the interest of the business activity of the appellant and such investments cannot be considered as investments resulting in exempt income for the purpose of computation in Rule 8D r.w.s 14A of the act. 16. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the investment in private limited companies are not made with the intention of earning dividends and therefore such investments cannot be considered as for the purpose of earning income exempt under the provisions of the act. 17. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that any gain arising on transfer of investments in private limited companies are assessable to tax under the provisions of the act and therefore such investments cannot be considered as for the purpose of earning income exempt u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 2,26,58,6021- made under the provisions of section 14A of the act r.w. Rule 8D of the Rules. iii) Delete the disallowance of ₹ 5,85,6001- out of the financial charges. iv) Hold that the investments in subsidiaries are for the benefit of appellant business and the provisions of section 14A has no application for such investments. v) Hold that the investment in private limited companies are not for the purpose of earning dividend and also since the gain consequent to sale of such investments are chargeable to tax under the provisions of the act, such investments cannot be considered for applying the provisions of section 14A of the act. 3. Though various grounds are raised but they are mainly related on two issues. First issue is regarding the calculation of disallowance under section 14A and the other is disallowance of financial charges of interest free advances given to subsidiary of the assessee. 4. With regard to the calculation of disallowances under section 14A, the learned counsel for the assessee has contended that the AO has not calculated the disallowances as per Rule 8D of the Income Tax Rules. He has estimated the disallowances at 50% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the rival submissions, we find that as per judgment of the Apex Court in the case of S. A. Builders, the onus is upon the assessee to prove that the interest free advances to its sister concern was given on account of commercial expediency. If the assessee is not able to establish these facts, the expenditure on disallowance of interest payment on the borrowed funds can be made. During the course of hearing, a specific query was raised to place some evidence that the interest free advances were given on account of business expediency, but nothing has been placed before us. Under these circumstances, we are constrained to hold that the interest free advances were not given to subsidiary on account of business expediency. Therefore, the AO has rightly made 12% as disallowance out of interest free advances. Accordingly, we confirm the order of the CIT(A). ITA No. 282/Bang/2012: 10. This cross appeal is preferred by the revenue against the order of the CIT(A) on the following grounds: 1. The order of the Learned CIT (Appeals), in so for as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant portion of the order of the Tribunal: On careful appreciation of the facts of the case on the issue of the allowability of the expenditure of Rs.11,33,806/- for maintenance of a gues house at Delhi by the assessee, we are inclined to agree with the finding of the learned CIT(Appeals). As rightly observed by the learned CIT(A), the Assessing Officer had not questioned the genuineness of this payment, but questioned only the allowability thereof. We find from a perusal of the Lease Deed dt. 20.07.2007 placed at pages 10 to 20 of assessee s Paper Book, by which the assessee had taken the guest house premises situated at 2nd Floor, A-264, Defence Colony, New Delhi, on rent was for commercial use/purposes as mentioned therein. It is the contention of the assessee that since it is engaged in aviation business, it is required to have liaison and co-ordination with various government departments/agencies in Delhi. The assessee has also furnished details of usage of the guest house, from which it is seen that senior officials of the assessee company had used the guest house on various dates. In view of the above factual matrix, we concur wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that undisputedly, during the AY 2007-08, the AO has made disallowance of the payment of ₹ 45 lakhs on account of goodwill, license fee after invoking the provisions under section 40A(2) of the Act and the Tribunal has restored the matter back to the AO with the direction to examine all aspects and pass a speaking order, whereas in the impugned AY, the disallowance was made under section 37 of the Act. The revenue has taken a contrary stand while making the disallowance in the different AY whereas the nature of payment is same. Under these circumstances, we are of the view that the revenue cannot take a different stand for making the disallowance in different AY. They should take one constant stand in all the years. In AY 2007-08, the matter has already been restored by the Tribunal to the AO to readjudicate the issue afresh. Therefore, we are of the view that in the present year, the matter should go back to the AO for adjudicating the issue afresh after obtaining relevant evidences from the assessee. We, therefore, set aside the order of the CIT(A) and restore the issue to the AO with the direction to adjudicate the issue afresh after making necessary verification and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily estimate a disallowable expenditure. 10. The appellant has admitted earned exempted income to the tune of ₹ 14,00,809 and the expenses disallowed is ₹ 11,30,403. This represents 81% of the income has been deemed to be cost incurred to earn the said income. 11. To assume that the cost of earning the income is 81% even under the circumstance that the investments existed during previous years is not based on facts or prudence. The appellant is being taxed for a notional income. Disallowance under section 37 - ₹ 28,03,850. 12. The learned assessing officer erred in disallowing the expenditure of ₹ 28,03,850 being financial consultancy fee paid to M/s Lexicon Finance ignoring the fact that the expenditure is incurred for the purpose of business. 13. The assessing officer had failed to appreciate the fact that the provisions of section 37 of the Act provides for allowance of expenditure incurred for the business, revenue in nature and genuinely incurred. Under law there is no case for disallowance. 14. The assessing officer should have appreciated the position in law that once the expenditure is genuinely incurred, it is not for the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 37 of ₹ 90,001000 18. Though various grounds are raised, but they relate mainly on 3 issues. 1st issue is disallowance under section 14A of the IT Act and 2nd issue is disallowance of ₹ 28,03,850/- under section 37 of the Act and the 3rd is disallowance of ₹ 90,00,000/- under section 37 of the Act. 19. Ground Nos. 1 and 3 are already been adjudicated by us in the foregoing appeals and both the grounds have been restored back to the AO for readjudication. Accordingly, we set aside the order of the CIT(A) and restore the matter to the file of the AO to readjudicate the issue in terms indicated in the foregoing appeals. Therefore, we are left with only one ground i.e., disallowance of ₹ 28,03,850/- under section 37 of the Act. The facts borne out from the record in this regard are that the assessee claimed payment towards legal and professional charges amounting to ₹ 1,25,80,866/- consisting of payments of ₹ 90,00,000/- to M/s. Vectra Holdings and ₹ 28,03,850/- to M/s. Lexicon Finance Ltd. The AO sought clarification of payment of fees to M/s. Lexicon Finance Ltd. It was explained that the said fee was being paid @ ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t established any of the above parameters laid down by the Act but yet choose to disallow the appellant s claim. 4.5 The material available on record reveals that the appellant has issued a letter dated 20/08/2008 to M/s. Lexicon Finance Ltd. for appointment as Consultant and the relevant terms and conditions are as below: 1. This agreement is made considering that your company has the necessary competence, background, knowledge and expertise in the fields that are considered relevant to current and future businesses of jupiter Group and that your company is in sound health to undertake the job assigned. 2. Your company will render your services on a full time basis to the Company its associates,l affiliates and group companies effectively in accordance with the terms of this Agreement. 3. Your company shall complete all assignment/projects, and/ or specific requirements as may be assigned to your from time to time. 7. Your company shall ensure that all projects/work assigned to you is completed within the specified/pre-determined time schedule, time being the essence. 9. Your company shall be paid a consolidated monthly retainer fee of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment strategy. Thus, in this way, this expenditure is capital in nature. 4.7 During the previous year relevant to the assessment year under consideration, the appellant earned income by way of interest on fixed deposits, dividend and interest on income-tax refund as under: Interest on F.Ds ₹ 2,56,28,816 Dividend ₹ 14,00,309 Interest on income-tax ₹ 15,68,715 Total ₹ 2,85,97,840 4.8 The other income is only ₹ 7,16,470/-. These incomes were computed by the appellant as 'Income from other sources.' In view of the above, the expenditure is allowable u/s 57(iii) of the Act if expended wholly and exclusively for the purpose of making or earning such income. The expenditure claimed as 'consulting services' is no nexus with the earning of interest and dividend income and on this ground also expenses are not allowable. In view of the fact and circumstances discussed above, I find no reason to interfere with the AO's fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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