TMI Blog2017 (8) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee : Shri S. Venkatraman For The Revenue : Shri Rajesh Kumar Yadav-DR ORDER Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 29/02/2016 of the First Appellate Authority, Mumbai, confirming the disallowance of ₹ 27,19,404/- made u/s 14A(2) of the Income Tax Act, 1961 (hereinafter the Act) read with Rule-8D of the Rules. 2. During hearing, Shri S. Venkataraman, ld. counsel for the assessee, advanced arguments, which are identical to the ground raised. The ld. counsel also relied upon the decision in the case of M/s Daga Global Chemicals vs ACIT (ITA No.5592/Mum/2012), order dated 01/01/2015, Nimbus Communication Ltd. vs ACIT (ITA No.1424/Mum/2014), order dated 09/02/2016 and Tata Industries Ltd. vs ITO (ITA No.4894/Mum/2008), order dated 20/07/2016. 2.1. On the other hand, the ld. DR, Shri Rajesh Kumar Yadav, defended the addition and placed reliance upon the decision from Delhi Bench of the Tribunal in the case of Baba Global Ltd. vs DCIT (ITA No.1086 to 1091/Del./2015) order dated 05/05/2016. 2.2. We have considered the rival submissions and perused the material available on record. The ld. DR main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence no adjustment is required to be made. It was further submitted that the rate of interest charged cannot be the Prime 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned AR also relied upon the following judgments:- ( i) Pan India Network Infravest Private Limited vs ACIT (ITA No. 7026 7025 /Mumbai/2013 dated 04.12.2015 ( 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO on the basis of an incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have 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 ofIndia 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 carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital 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 pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign currency in which the repayment is to be made. The same principle should apply. 21. Accordingly the applicable rate of interest shall be the rate of interest in respect of 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:- xxxxxxxxxxxxxxxx AY 2009-10 2010-11. Accordingly this ground of the assessee is partly allowed for AY 2009-10 2010-11. XXXXXXXXXXXXXXXXX 22. As regards the addition on this account in assessment year 2011-12, the advance given to its subsidiary companies stand converted into share application money. Once the loan has been converted into share application money, for the issue of the share capital, then such amount cannot be considered as loan. The TPO is not permitted under the law to re-characterize the transaction and accordingly we are of the view that no interest on such share application money can be charged. The above view is supported by the judgment of the Coordinate Bench of the ITAT in the case of Bharti Airtel Ltd. vs. ACIT, [2014] 161 TTJ 0283 (Del) wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 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] 372 ITR 694 (Del). Accordingly we direct the AO to restrict the addition to the exempt income. Accordingly this ground is partly allowed in favour of the assessee. 27. In view of the above findings the assessee s appeals for the A.Y. 2006-07 being ITA No. 1086/Del/2015, A.Y. 2007-08 being ITA No. 1087/Del/2015, A.Y. 2008-09 being ITA No. 1088/Del/2015 are allowed, Appeal for A.Y. 2009-10 being ITA No. 1089/Del/2015, A.Y. 2010-11 being ITA No. 1090/Del/2015 and A.Y. 2011-12 being ITA No. 1091/Del/2015 are partly allowed. 2.3. We find that in the present appeal, the issue relates to disallowance of ₹ 27,19,404/- made u/s 14A(2) of the Act read with Rule-8D of the Rules. Considering the totality of facts, we are of the view that at best, if any disallowance could be made that cannot exceed the exempt income. The Tribunal in the case of Nimbus Communication Ltd. (supra) has made an elaborate discussion a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
