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2017 (4) TMI 808 - ITAT MUMBAI

2017 (4) TMI 808 - ITAT MUMBAI - TMI - Disallowance u/s.14A - average value of investment after amalgamation - Held that:- Bombay High Court vide its order,dated 05/08/2001,had approved the scheme of amalgamation with effect from 01/04/2010, that in pursuance of the scheme three entities merged with the assessee company only on 01/04/2010 and not before that.It is a fact that NFIPL,AMMSPL and YFPL got amalgamated with the assessee from a particular date and the assessee had taken the balances of .....

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d loan to AFL, that it had not charged any interest from AFL, that it had on its own disallowed ₹ 11,77,28,592/- on interest free loans given to various entities.Though in the books of accounts the assessee had written off ₹ 6.58 crores, but, in the statement of income it had not claimed the deduction. But, we find that there is need to make further verification about the position of interest free funds available with the assessee and interest free loan advanced by it.Therefore, in t .....

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order, dated 11/09/2014,of the CIT (A)-17,Mumbai, the assessee and the Assessing Officer(AO)have filed cross appeals for the year under consideration.Assessee-company, engaged in the business of training and goods and commodities,filed its return of income on 29/09/2011,declaring total income of ₹ 5.12 crores.The AO completed the assessment u/s.143(3)of the Act,on 11/02/2014, determining its income at ₹ 8.55 crores. 2.During the course of hearing before us,the Authorised Representati .....

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stated on behalf of the assessee that additional Ground dealt only with disallowance u/s.14A and it goes to the root of the issue.On behalf of the department it was stated that issue could be decided on merits. We have gone through the additional Grounds raised by the assessee.We find that with the passage of time clarity is emerging with regard to disallowance to be made under Rule 8D r.w.s. 14A of the Act, that various judicial forums have discussed and deliberated upon the issue at length. T .....

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; 9.21 crores u/s.14A read with Rule 8D of the Income Tax Rules,1962 (Rules). He observed that the working of dis - allowance was not proper.Accordingly,he directed the assessee to explain as to why disallow -ance u/s.14A read with Rule 8D should not be made.Consequently,a sum of ₹ 12. 15 crores was disallowed as against the disallowance made by the assessee itself of ₹ 9,21,18,554/-. 3.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Au .....

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submission of the assessee and the assessment order, the FAA held that the assessee had rightly considered the closing balances of investments and assets as on 31/ 03/2010 of three companies,that Rule 8D provided that for the purpose of the Rule,total assets would mean total assets as appearing in the balance sheet excluding the increase on account of the valuation of assets but including the decrease on account of the increase of assets, that for computation of disallowance what was material w .....

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Authorised Representative (AR) relied upon the order of the FAA. 3.4.We have heard the rival submissions and perused the material before us. We find that the Hon ble Bombay High Court vide its order,dated 05/08/2001,had approved the scheme of amalgamation with effect from 01/04/2010, that in pursuance of the scheme three entities merged with the assessee company only on 01/04/2010 and not before that.It is a fact that NFIPL,AMMSPL and YFPL got amalgamated with the assessee from a particular dat .....

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sallowance of interest u/s.36(1) (iii) of the Act. During the assessment proceedings, the AO found that the assessee had claimed sundry balances written off, amounting to ₹ 6.56 crores, that the assessee itself had disallowed loan written off, that the assessee had given loan to ACT Finvest Ltd. (AFL) of ₹ 6.69 crores, during the year under consideration, that out of the said amount it had written off ₹ 6, 56, 21,308/-and had debited the same to its profit and loss account. He .....

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e on the amount in question, that the loan written off itself was not claimed as allowable,that in the computation of income the disallowance of related interest was also not considered.After considering the submission of the assessee, the AO held that AFL had borrowed money for a period of six months, that the assessee was paying interest on the borrowed funds on one hand and that on other hand it was not charging an interest on advances given to AFL, that it was engaged in the business of trad .....

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s and relied upon several case laws. After considering the available material, he held that the AO had begun with the presumption that income accrued to the assessee and worked out the same at 8.5% for the loan advanced to AFL, that income cannot be levied on hypothetical income. He referred to the cases of Shoorji Vallabhdas & Company (46 ITR 144) and Morvi Industries Ltd. (82 ITR 835) and Godhra the Electricity Company Ltd. (225 ITR 746) that no real income had accrued to the assessee, tha .....

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as not been charged by the assessee from AFL, that the assessee had on its own disallowed interest on interest-free loan given to various parties, that there was no scope of any further disallowance on that count. Accordingly, he deleted the disallowance as the same would amount to double disallowance. 4.2.During the course of hearing before us, the DR stated that matter could be decided on merits. The AR supported the order of the FAA and relied upon the case of Excel Industries (358ITR295).Alt .....

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ut, in the statement of income it had not claimed the deduction. But, we find that there is need to make further verification about the position of interest free funds available with the assessee and interest free loan advanced by it.Therefore, in the interest of justice, we are restoring back he issue to the file of the AO for further verification. He is directed to afford a reasonable opportunity to the assessee. Second Ground is decided in favour of the AO, in part. ITA/7270/Mum/2014 : 5.Firs .....

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