TMI Blog2016 (3) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer and confirmed by the CIT(A) is bad in law. - Decided in favour of assessee. Penalty u/s 271(1)(c) - Held that:- There remains no basis for levying the penalty u/s 271(1)(c) of the Act for furnishing the inaccurate particulars of income. It is well settled law that where the additions made in the assessment order, on the basis of which penalty u/s 271(1)(c) was levied, are deleted, there remains no basis at all for levying the penalty u/s 271(1)(c) of the Act and, therefore, in such a case, no such penalty can survive and the same is liable to be cancelled. - Decided in favour of assessee. - ITA No. 1048/Chd/2013, ITA No. 536/Chd/2015, ITA No. 1296/Chd/2010, ITA No. 753/Chd/2012, ITA No. 62/Chd/2013, ITA No. 822/Chd/2014, ITA No. 928/Chd/2013, And ITA No. 778/Chd/2013 - - - Dated:- 18-3-2016 - SHRI H.L.KARWA, HON'BLE VICE PRESIDENT, AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER For The Appellant : Sh. Subhash Aggarwal For The Respondent : Sh. Manjit Singh ORDER PER H.L.KARWA, VP These eight appeals involving certain common issues were heard together and are being disposed off by this common order for the sake of convenience. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly helped the assessee to carry out the business more efficiently. The assessee claimed that there was thus a commercial expediency in advancing the loans to the hospital. 4. The Ld. CIT(A) did not accept the assessee s claim for the reasons stated in para 3.3 of the impugned order and, hence, the assessee in appeal before the Tribunal. 5. We have considered the rival submissions and have also perused the materials available on record. Shri Subhash Aggarwal Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. Shri Manjit Singh Ld. DR heavily relied on the findings given by the CIT(A) in para 3.3 of the impugned order, wherein the CIT(A) has observed that the assessee company had miserably failed to produce any evidence to demonstrate that the hospital was providing free / concessional treatment to its employees. The CIT(A) further noted that the assessee did not produce any agreement between hospital and the company showing that the hospital had agreed to give free treatment to employees of the company or treatment at concessional rates. We may observe here that Shri Subhash Aggarwal, Ld. Counsel for the assessee relied on number of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble High Court further observed that the Revenue has failed to established that a particular advance received was in turn advanced by the assessee interest free. It is relevant to mention that in the assessment year 2002-03, on similar set of facts, the Assessing officer disallowed interest of ₹ 1,95,641/- u/s 36(i)(iii) of the Act. In that year also, the assessee advanced an interest free amount of ₹ 34,14,091/- to the aforesaid hospital (trust). It is stated that the disallowance made by the Assessing officer was deleted by the CIT(A) and no appeal was preferred by the Revenue before the Tribunal. It is relevant to observe that in order to run the hospital efficiently, the hospital was sometimes in need of money which was being advanced by the assessee company. There is no material on record to controvert this contention of the assessee that the employees of the company used to get treatment from this hospital free of charge or at concessional rates, which indirectly helped the assessee to carry out its business smoothly and efficiently. It is claimed that the amount in question was advanced to charitable hospital by way of commercial expediency in the sense that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re taken from the banks at which interest was paid for the purposes of business, the interest thereon could not be claimed as business expenditure. We are of the opinion that such an approach is clearly faulty in law and cannot be countenanced. In so far as loans to the sister concern / subsidiary company are concerned, law in this behalf is recapitulated by this Court in the case of 'S.A. Builders Ltd. v. Commissioner of Income Tax (Appeals) and Another' [2007 (288) ITR 1 (SC)]. After taking note of and discussing on the scope of commercial expediency, the Court summed up the legal position in the following manner: - 26. The expression commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. 27. No doubt, as held in Madhav Prasad Jatia v. CIT [1979 (118) ITR 200 (SC)], if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expedie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to the effect that it would provide additional margin to M/s. Hero Fibres Limited to meet the working capital for meeting any cash loses. It would also be significant to mention at this stage that, subsequently, the assessee company had off loaded its share holding in the said M/s. Hero Fibres Limited to various companies of Oswal Group and at that time, the assessee company not only refunded back the entire loan given to M/s. Hero Fibres Limited by the assessee but this was refunded with interest. In the year in which the aforesaid interest was received, same was shown as income and offered for tax. In so far as the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the Bank account when the said advance of ₹ 34 lakhs was given. Remarkably, as observed by the CIT (Appeal) in his order, the company had reserve/surplus to the tune of almost 15 crores and, therefore, the assessee company could in any case, utilise those funds for giving advance to its Directors. On the basis of aforesaid discussion, the present appeal is allowed, thereby setting aside the order of the High Court and restori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal with equal force. For the detailed findings given in ITA No. 1048/Chd/2013 relating to assessment year 2004-05, we delete the disallowance of ₹ 1,30,51,310/- made u/s 36(i)(iii) of the Act. 12. In the result, ITA No. 536/Chd/2015 is allowed. ITA No. 1296/Chd/2015 (A.Y. 2007-08) Revenue s appeal 13. This appeal filed by the Revenue is directed against the order of CIT(A) II, Ludhiana dated 2.9.2010 relating to assessment year 2007-08. 14. In this appeal, the Revenue has raised the following grounds:- 1. That the Ld. CIT(A)-II has erred in law and on facts in deleting the disallowance of ₹ 13,29,046/- made by Assessing officer u/s 14A on account of expenditure incurred to earn exempt income. 2. That Ld. CIT(A) has erred in law and on facts in deleing the disallowance of ₹ 23,78,966/- made by the Assessing officer u/s 36(i)(iii) of the I.T. Act. 15. As regards ground No.1 of the appeal, the relevant facts are that the assessee filed its return of income on 31.10.2007 declaring total income at ₹ 12,30,45,410/-. The assessee earned dividend of ₹ 9,06,051/- which was claimed exempt. The Assessing officer invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable from assessment year 2008-09 as it has been held by the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd Vs. DCIT (2010) 328 ITR 81 (Bom,). Even on this score also, we hold that disallowance made by the Assessing officer and confirmed by the CIT(A) is bad in law. In view of the above, we reject ground No.1 of the appeal. 18. As regards ground No.2 of the appeal, the relevant facts are that the Assessing officer disallowed interest u/s 36(i)(iii) of the Act amounting to ₹ 23,78,966/- on interest free advance to Pahwa Charitable Trust. On appeal, the CIT(A) deleted the addition relying on the decision of the Hon'ble Madras High Court in the case of CIT Vs. Kandagiri Spinning Mills Ltd (2008) 298 ITR 306 (Mad.). In that case also, the amount given as advance to a hospital under similar circumstances was considered to be on account of commercial expediency. 19. Before us, it was contended on behalf of the assessee that assessee had advanced a loan of ₹ 1,62,85,560/- to M/s Pahwa Charitable Trust Hospital (Trust). It is claimed that the assessee had share capital of ₹ 5.98 crores , reserves at ₹ 88.95 crores and also inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13/- Pahwa Charitable Hospital 1,98,56,569/- 365 2 3,82,788/- S. Nihal Singh Pahwa Trust 4,34,675/- 365 52,161/- Caproinfotech 14,00,000/- 365 1,68,000/- Nitin Kumar Delhi 1 7,00,000/- 365 2,04,000/- Larson Turbo Delhi 5898832/- 365 7,07,860/- Container Corp. Marine Agencies Pvt Ltd 93,25,233/- 365 11,19,028/- Avon Rims Ltd. 1,500/- 365 180/- Avon Ispat Ltd 1,500/- 365 180/- Avon Ispat Ltd 96,389/- 365 11,567/- Suspense Account 8,10,096/- 365 97,211/- Total disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the provisions of section 14A read with Rule 8D of the I.T. Rules disallowed a sum of ₹ 15,82,729/- and the said disallowance was confirmed by the CIT(A). 27. While deciding ground No.1 of the appeal, we have observed that the assessee had own funds and reserves and also the income earned during the year out of which investment were made. Therefore, no disallowance u/s 14A / Rule 8D of the I.T. Rules can be made if the investment is out of own capital and reserves. Accordingly, we allow this ground of appeal. 28. Ground No.3 of the appeal is general in nature and, hence, no comments are being given. 29. Ground No. 4 of the appeal relates to charging of interest u/s 234B and 234D of the Act. 30. At the time of hearing of the appeal, it was claimed that this ground of appeal is consequential in nature. We hold accordingly and direct the Assessing officer to give relief of the assessee accordingly. In view of the above, appeal of the assessee is allowed. 31. In the result, the ITA No. 753/Chd/2012 is allowed. ITA No. 62/Chd/2013 (A.Y. 2009-10) 32. This appeal filed by the assessee is directed against the order of CIT(A)-II dated 27.12.2012 relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qual force. Accordingly, we allow ground No.1 of the appeal. 36. As regards ground No.2 of the appeal, the facts are that the assessee had shown investments of ₹ 2,18,12,014/- and ₹ 2,23,86,033/- as on 31.3.2008 and 31.3.2009 respectively. The assessee claimed interest expenditure of ₹ 18,93,94,225/-. The Assessing officer invoked the provisions of section 14A of the Act and disallowed ₹ 19,49,303/- by invoking the provisions of Rule 8D of I.T. Rules, 1962. 37. On appeal, the CIT(A) following his own order passed in assessee s case for assessment year 2008-09 confirmed the disallowance and, hence, the assessee is in appeal before the Tribunal. 38. In view of the decision on similar issue passed in assessee s case for assessment year 2008-09, and also keeping in view the facts narrated in relation 20 to ground No.1 of this appeal, we hold that there was no justification in making the disallowance u/s 14A read with Rule 8D of the I.T. Rules. Accordingly, we allow this ground of appeal. 39. Ground No. 4 of the appeal relates to charging of interest u/s 234B and 234D of the Act. At the time of hearing, it was claimed that this ground is consequential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to ₹ 37,84,532/- on account of alleged debit balance in accounts of various parties. 48. During the year under consideration, the assessee had shown loans and advances given to the following parties:- Name Amt Roop Pahwa 46,444/- Kulbir Pahwa 1,05,000/- Consultancy SS A/c (FS) 2,76,060/- Consultancy SS A/c (FS) 86,46,196/- Pahwa Charitable Hospital 2,,33,89,392/- The Assessing officer noted that the assessee also received secured loans of ₹ 67,49,19,233/- and unsecured loans of ₹ 3,83,74,539/-. The total interest expenditure claimed by assessee was ₹ 14,25,95,629/-. The Assessing officer disallowed a sum of ₹ 37,84,532/- u/s 36(1)(iii) of the Act. 49. On appeal, the CIT(A) confirmed the addition following his order passed in assessee s case for assessment years 2008-09 and 2009-10. 50. We have heard the rival submissions. While deciding the assessee s case in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mments are being given. 55. Ground No.4 relates to charging of interest u/s 234A and 234B of the Act. It is stated by Ld. Counsel for the assessee that this ground of appeal is consequential in nature and we hold accordingly. We direct the Assessing officer to give relief to the assessee accordingly. 56. In the result, the ITA No. 928/Chd/2013 is allowed. ITA No.778/Chd/2014 (A.Y. 2011-12) 57. This appeal filed by the assessee is directed against the order of CIT(A) dated 4.7.2014 relating to assessment year 2011-12. 58. The first issue raised by the assessee in this appeal relates to disallowance of ₹ 77,57,820/- u/s 36(i)(iii) of the Act. During the year under consideration, the assessee had advanced interest free advances to the following persons: Name Amoutn Peariod Roopa Pahwa 46,444/- Squared up Kulbir Pahwa 1,05,000 365 days Avery Raleigh Cycles Ltd 4,42,45,402/- 365 days S. Nihal Singh Pahwa Charitable Hospital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of earlier years. 63. In view of our decision in ITA No. 753/Chd/2012 (assessment year 2008 09), ITA No.62/Chd/2013 (A.Y. 2009-10 and ITA No. 928/Chd/2013 (assessment year 2010-11) and also keeping in view the facts noted in relation to ground No.1 of the appeal, we do not see any justification in making the disallowance u/s 14A read with Rule 8D of the Act. It is now almost settled that no disallowance u/s 14A of the Act / Rule 8D can be made if the investments are out of the own capital and reserves. In the instant case, while deciding ground No.1 of the appeal, we have observed that assessee had adequate free reserves and share capital and income of the year which are available with it and the investments are out of those funds and, therefore, no disallowance is called for. Accordingly, we delete the addition of ₹ 11,95,180/- 64. The next issue relates to charging of interest u/s 234B of the Act. At the time of hearing of the appeal, it was claimed that this ground of appeal is consequential in nature, and we hold accordingly. The Assessing officer is directed to give relief to the assessee accordingly. 65. In the result, ITA No. 778/Chd/2014 is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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