TMI Blog2017 (8) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Globus Industries & Services ltd. and the appellant are sister concerns. Finally, even in the impugned order the business of the appellant includes trading in Vanaspati and edible oils. Accordingly, considering all these observations and arguments, the disallowance of interest u/s 36(1)(iii) made in the impugned order by working out the average rate of interest at 12% on the interest-free advance of ₹ 368.56 lacs (= ₹ 44,22,7201-) was rightly deleted by the Ld. CIT(A), which does not need any interference - Decided in favour of assessee. - ITA No. 1171/DEL/2017 - - - Dated:- 8-8-2017 - SHRI H.S. SIDHU, JUDICIAL MEMBER For The Revenue : Sh. T. Vasanthan, Sr. DR. For The Assessee : Sh. Subodh Gupta, FCA ORDER The Revenue has filed the Appeal against the Order dated 25.11.2016 of the Ld. CIT(A)-39, New Delhi pertaining to assessment year 2012-13 on the following grounds:- 1. On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in deleting the disallowance u/s 36(1)(iii) of ₹ 44,22,720/- on account of interest expenses on business advance for purchase of equity shares out of borrowed funds. 2. On the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced as under:- 5. I have considered the order u/s 143(3) of the Act, the submission of the AR along with the case laws relied upon by him and the extant law on the subject. While the grounds at (h) and (i) are general and not pressed during the appellate proceedings, the ground at (d) covers the grounds at (b) and (c) and that at (f) covers the ground at (e), while the ground at (g) is on the demand raised on the assessed income covering all the grounds of appeal. From the ground at (a) of the grounds of appeal mentioned at para 3 above, it is observed from the impugned order that the AO has rejected the contention of the appellant towards the proposed disallowance of expenses u/s 14A on the strength of the meaning of Section 14A itself and its determination vide application of Rule 8D of the Income tax Rules 1962. 5.1 From a plain reading of Section 14A (1), it is clear that the objective behind the provision is to disallow only such expense which is relatable to tax-exempt income and not expenditure in relation to any taxable income. While there is no doubt that the method for determining amount of expenditure in relation to income not includible in total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable on the assessee. The computation of disallowance u/s 14A of the Act read with Rule 8D is done However, from the impugned order, it is observed that the determination of disallowance u/s 14A r w Rule 80 is not correct as there is no nexus shown between expenses related to income Rot included in the total income (tax exempt income) and the tax-exempt income itself. Even the investment is not fresh but of earlier years. 5.3 It can therefore be safely be inferred from the impugned order that the satisfaction of the AO for disallowance of expenses, in view of the presumed taxexempt dividend income, u/s. 14A of the Act is drawn from the fact that the appellant suo moto did not make any such disallowance. Also, there appears to have been no objective analysis of the appellant s expense in this regard vis- -vis its account. again, the legislative intent of Section 14A which is to disallow the expenditure in relation to income, which does not form part of total income requires proper identification rather than disallowing all or proportionate interest and administrative expenses on an ad hoc basis. In fact, the AR's version of the facts is borne out from records. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj Gupta to acquire shares of M/s. Globus Industries and Services ltd. The company has taken secured loan from banks and unsecured loans from others and interest of ₹ 2,68,50,884/- is debited under the head finance cost , whereas the company is advancing interest free advances to Globus Industries Services ltd / PSIDC / Suraj Gupta. In response to the show cause issued regarding charging of interest @ 12% interest on the advances of ₹ 368.56 lacs, the appellant responded that the MIs. Globus Industries and Services ltd. was engaged in manufacture of Vanaspati and Refined Oil at Fazilka (Punjab) and both PSIDC and Suraj Gupta were holding the shares of the company which the appellant was in the process of acquisition. As these were advances of purchase of assets and not a loan, there was no stipulation regarding payment of interest. However, due to certain strategic decision at the level of PSIDC, the transfer of shares. is yet to take place and hence the outstanding. The appellant further submitted that there was no fresh investment in this regard during the year and the impugned advances for purchase of shares of M/s. Globus Industries and Services ltd. was made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be no finding of the fact that M/s. Globus Industries Services ltd. and the appellant are sister concerns. Finally, even in the impugned order the business of the appellant includes trading in Vanaspati and edible oils. Accordingly, considering all these observations and arguments, the disallowance of interest u/s 36(1)(iii) made in the impugned order by working out the average rate of interest at 12% on the interest-free advance of ₹ 368.56 lacs (= ₹ 44,22,720/-) is deleted. 6.1 After going through the aforesaid finding of the Ld. CIT(A), with regarding to ground no. 2 relating to deletion of addition u/s. 14A of the Act of ₹ 3,63,454/- is concerned, it is observed that the AO has rejected the contention of the assessee towards the proposed disallowance of expenses u/s 14A on the strength of the meaning of Section 14A itself and its determination vide application of Rule 8D of the Income tax Rules 1962. From a plain reading of Section 14A(1), it is clear that the objective behind the provision is to disallow only such expense which is relatable to tax-exempt income and not expenditure in relation to any taxable income. While there is no doubt that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to avoid addition u/s 14A and the provisions of Section 14A of the Act are squarely applicable on the assessee. The computation of disallowance u/s 14A of the Act read with Rule 8D is done... However, from the impugned order, it is observed that the determination of disallowance u/s 14A r w Rule 80 is not correct as there is no nexus shown between expenses related to income Rot included in the total income (tax exempt income) and the tax-exempt income itself. Even the investment is not fresh but of earlier years. It can therefore be safely be inferred from the AO s order that the satisfaction of the AO for disallowance of expenses, in view of the presumed tax-exempt dividend income, u/s. 14A of the Act is drawn from the fact that the assessee suo moto did not make any such disallowance. Also, there appears to have been no objective analysis of the appellant s expense in this regard vis- -vis its account. again, the legislative intent of Section 14A which is to disallow the expenditure in relation to income, which does not form part of total income requires proper identification rather than disallowing all or proportionate interest and administrative expenses on an ad hoc basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given advances of ₹ 312.56 crores to Punjab State Industries Development Corporation (PSI DC) and ₹ 56,00,000/- to Mr. Suraj Gupta to acquire shares of M/s. Globus Industries and Services ltd. The company has taken secured loan from banks and unsecured loans from others and interest of ₹ 2,68,50,884/- is debited under the head finance cost , whereas the company is advancing interest free advances to Globus Industries Services ltd / PSIDC / Suraj Gupta. In response to the show cause issued regarding charging of interest @ 12% interest on the advances of ₹ 368.56 lacs, the appellant responded that the MIs. Globus Industries and Services ltd. was engaged in manufacture of Vanaspati and Refined Oil at Fazilka (Punjab) and both PSIDC and Suraj Gupta were holding the shares of the company which the assessee was in the process of acquisition. As these were advances of purchase of assets and not a loan, there was no stipulation regarding payment of interest. However, due to certain strategic decision at the level of PSIDC, the transfer of shares. is yet to take place and hence the outstanding. The assessee further submitted that there was no fresh investment in ..... 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