TMI Blog2017 (11) TMI 1549X X X X Extracts X X X X X X X X Extracts X X X X ..... nly pleading of ld. A.R. that certificate submitted for M/s Religare Finvest Ltd. was not considered by the ld. CIT(A) is remains to be considered. In view of various decisions of the Courts, this plea is allowed. The certificate produced needs consideration. In the interest of justice and equity, this issue is restored back to the file of the Assessing Officer for verification. The certificate issued by the C.A. in the case of M/s Religare Finvest Ltd. shall be considered by A.O. and of found in order, relief shall be allowed. As regarding the difficulty in submitting certificate from Barclays Investment & Loan (India) Ltd. is concerned, it is of the view that the assessee shall be provided one more opportunity to submit the same. Therefore, this issue is also restored to the file of Assessing Officer. The ground is partly allowed for statistical purposes Disallowance of interest paid on the borrowed funds and also making the interest free advances to M/s Ravi Associates - Held that:- Issues needs a fresh look at the level of the Assessing Officer, therefore, in the interest of justice and equity, the issues raised in grounds No. 2 and 3 of the appeal are restored back to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee was selected for scrutiny assessment under CASS and the assessment was finalized U/s 143(3) of the Income Tax Act, 1961 (in short the Act) at a total income of ₹ 17,94,630/- by making various additions by the Assessing Officer. The ld CIT(A) has give part relief to the assessee. 3. Now the assessee is in appeal before the ITAT. 4. In the grounds No. 1, 1.1, 1.2 and 1.3 of the appeal, the issues are against confirming the disallowance of ₹ 6,99,639/- made U/s 40(a)(ia) of the Act on account of non deduction of tax at source on the interest paid to financial institutions and also not admitting the certificate issued by the Chartered Accountant in the case of M/s Religare Finvest Ltd. as per Rule 46A of the Income Tax Rules, 1962 (in short the Rules). The ld CIT(A) has upheld the order of the Assessing Officer on these issues by holding as under: 3.1.2 Determination: ( i) I have duly considered the submissions of the appellant, assessment order and the material placed on record. During the year under consideration, the appellant has paid interest of ₹ 4,93,992/- to Barclays Investment Loan(l) Ltd. and ₹ 2,05,647/- to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% disallowance presently made. The contention of the appellant that since the said amendment was intended to mitigate the hardships to the assessees, therefore, this amendment is retrospective in nature and thus the disallowance is to be restricted to 30% of the amount of interest under consideration has been examined very carefully and I do not find any merit thereof. Had the intention of the legislature was to make the said amendment retrospective in nature, then it should have stated so whereas as per the statute, the said amendment is effective from 01.04.2015 only. It may be mentioned that in the case of Gem Granites Vs CIT [2004] 141 Taxman 528 (SC), it was observed by the Hon'ble Apex Court that: 12. Every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. [See: Keshavan Madhava Menon v. State of Bombay AIR 1951 SC 128, 130], There is nothing in the wording of the 1991 amendment to suggest that it was to operate retrospectively. Apart from the lack of any express words indicating such intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., the assessee vide various letters (PB 16-19) requested it to issue a CA Certificate in Form 26A. However, the same is not responded. It is submitted that Barclays Investment Loan (India) Ltd. has assigned our loan to Kotak Mahindra Bank Ltd. w.e.f. 05.02.2013 (PB 20) and therefore, the assessee was helpless in obtaining the certificate in Form 26A. However, considering that it is an NBFC who is regularly filing the return of income and the balance sheet of this company is filed to the AO vide letter dated 10.02.2013 (refer pages 2-3 of the assessment order), it should be presumed that it has included the interest income in their return and paid tax on the same as held by the Hon ble ITAT Jaipur Bench in case of ACIT vs. Girdhari Lai Bargoti ITA No. 757/JP/2012 dated 10.04.2015 where relying on the decision of the Hon ble Delhi High Court in case of CIT Vs. Tran Bharat Aviation Pvt. Ltd. 320 ITR 671 it was held that the recipient being an NBFC it is not possible that they are not assessed to tax and therefore, no disallowance u/s 40(a)(ia) can be made. Alternatively, AO be directed cause necessary enquires from Barclays Investment Loan (India) ltd. to ensure that it has i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arranted, same should be restricted to only 30% of the amount of interest paid. Reliance is placed on the following cases where it is held that any amendment made in the Act which is intended to remove unintended and undue hardship should be given retrospective effect. Ld AR relied on the following case laws: ( i) Shri Rajendra Yadav vs. ITO (Jaipur Trib) ITA No.895/JP/2012 pronounced on 29.01.2016. ( ii) Allied Motors Pvt. Ltd. vs. CIT 224 1TR 677 (SC) ( iii) CIT vs. Alom Extrusions Ltd. 319 ITR 306 (SC) In view of above, the disallowance confirmed by the Ld. CIT(A) be directed to be deleted or alternatively be restricted to 30% of the amount disallowed in case of Barclays Investment Loan (India) Ltd. 6. On the other hand, the ld DR has relied on the orders of the authorities below. 7. I have heard both the sides on this issue. The issue regarding payable has been decided by the Hon'ble Supreme Court in the case of Palam Gas Ltd. Vs M/s Palam Gas Services Vs CIT in Civil Appeal No. 5512 of 2017 order dated May, 03rd, 2017, therefore, this pleading is dismissed. As far as retrospectivity of amendment in Section 40(a)(ia) of the Act is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation money being incapable of yielding any tax-free income, same would have to excluded in working out disallowance under rule 8D. Therefore, I do not find any justification for the AO to invoke the provisions of section 14A of the Act and hence, the disallowance of ₹ 4,63,951/- made by the AO is hereby deleted. ( ii) However, it was noted earlier in this order that as on 31.03.2012, the appellant was having its own interest free funds to the tune of ₹ 22,12,577/-whereas it has shown investment in equity shares of M/s Salasar Buildhome Pvt. Ltd. to the tune of ₹ 33.50 Lac meaning thereby that borrowed funds to the tune of ₹ 11,37,423/- were used for making share application money. During the course of hearing, the appellant was asked whether there was any business purpose or commercial expediency in making application for the allotment of equity shares of M/s Salasar Buildhome P Ltd but no satisfactory explanation could be furnished. Further, it was stated by the appellant that the equity shares were not even allotted till date. Therefore, these facts clearly establish that the appellant has utilized borrowed funds to the extent of ₹ 11,37,423 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed interest expenses of ₹ 28,73,401/- and claimed all the expenditure under the head business expense. From the books it is not ascertainable what amount of interest expense pertains to exempted dividend income. He accordingly, held that the provision of section 14A of the IT Act, 1961 are attracted and thus, made disallowance of ₹ 4,63,951/- (Rs. 4,49,584/- for interest and ₹ 14,367/- for expense) as per Rule 8D. 2. The Ld. CIT(A) deleted the disallowance made by the AO but held that as on 31.03.2012, the assessee had ₹ 22,12,577/- as interest free funds whereas the investment in M/s Salasar Buildhome Pvt. Ltd. is ₹ 33.50 lakhs i.e., borrowed funds amounting Rs.l 1,37,423/- was invested. The assessee could not furnish any explanation whether the share application was made for business purpose or for commercial expediency. Thus, he held that borrowed funds have been utilized for non-business purposes or without any commercial expediency and by placing reliance on the decision rendered in S A Builders 288 ITR 1 (SC), he disallowed interest @ 12% on ₹ 11,37,423/- i.e., ₹ 1,36,491/- u/s 36(l)(iii). 3. It is submitted that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant can be attributed towards giving of advance to M/s Salasar Buildhome Pvt. Ltd. It is a settled law that if there are funds available both interest free and over draft and/or loans taken, then a presumption would arise that advance/investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. For this, reliance is placed on the following judicial precedents:- ( i) CIT vs. Max India Ltd. (2016) 141 DTR 145 (P H) (HC) Merely because the interest free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease, the assessee has interest free funds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilized for the said investment remains. Natural course of business would suggest that the assessee would utilize the funds to the maximum advantage which in cases such as these would lead to making investments for the operational assets first out of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting the disallowance, Hon ble ITAT placed reliance on the decision of Bombay High Court in case of CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 and also on various other decisions cited by the assessee. ( v) DCIT vs. Maharashtra Seamless Ltd. (2011) 52 DTR 005 (DeI.)(Trib.) In this case CIT(A) deleted the disallowance on the ground that assessee had maintained that interest expenditure was incurred in respect of borrowing on cash credit limits utilized for normal business purpose of the assessee no part of borrowed funds has been utilized for making investment in tax free bonds that the AO had not established any nexus between the borrowed funds the investment in tax free bonds. These findings of CIT(A) was held justified it was held that where funds are mixed it is not possible to ascertain as to whether investment in tax free bonds was out of assessee s own fund, the AO did not establish nexus between borrowed funds the investment in tax free bonds, in such cases apportionment on pro rata basis was improper in the absence of any thing brought by the AO to rebut the assessee s stand that the investment in tax free bonds had been made out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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