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TMI Blog2017 (11) TMI 1549X X X X Extracts X X X X X X X X Extracts X X X X ..... to remove unintended hardship, only 30% of such amount can be disallowed by giving the effect of this amendment retrospectively. 1.3 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not giving cognizance to the Form 26A issued by Chartered Accountant in case of M/s Religare Finvest Ltd. holding that the assessee has not filed application under Rule 46A. 2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in disallowing Rs. 1,36,491/- u/s 36(1)(iii) holding that borrowed funds to the extent of Rs. 11,37,423/- were utilized for the purpose of share application and interest calculated @ 12% on such amount is disallowed. 3. The Ld. CIT(A) has erred on fact and in law in confirming the disallowance out of interest expenses of Rs. 1,42,790/- made the AO u/s 36(1)(iii) on account of interest free advance given to M/s Ravi Associates. 4. The assessee craves to amend, alter and modify any of the grounds of appeal. 5. The appropriate cost be awarded to the assessee." 2. The assessee company is engaged in the business of trading of medicines on wholesale basis. The assessee filed its return of income on 21/9/2012 declarin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Religare Finvest Ltd. and in respect of Barclays Investment & Loan (India) Ltd., it was stated that a request has been made for issue of Form No. 26A. It is pertinent to mention here that the appellant did not file any such Form 26A in the case of M/s Religare Finvest Ltd. during the assessment proceedings and as such it becomes additional evidence at the appellate stage. The appellant has just filed the same without stating that the same is additional evidence and without making an application under Rule 46A of the IT Rules for admission of additional evidence. It may be mentioned that the law prescribed a procedure for filing additional evidence during the appellate proceedings and it is not a matter of right to tile the additional evidences at the appellate stage even without stating that these are additional evidence. In view of these facts, no cognizance could be given to the Form No. 26A filed by the appellant in the case of M/s Religare Finvest Ltd. (iv) It was another contention of the appellant that vide Finance Act, 2014 an amendment has been made in section 40(a)(ia) of the Act w.e.f. 01.04.2015 whereby it was provided that 30% of any sum payable to a resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication under Rule 46A for admission of this evidence. It is submitted that if the Ld. CIT(A) was so particular on such technical issue, he ought to have allowed an opportunity to the assessee to file such application. It is a fundamental rule of jurisprudence that justice should prevail over the technicalities. The Hon'ble Supreme Court in case of S. Nagaraj vs. State of Karnataka 4 SCC 595 observed that justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way. Therefore, once certificate of Chartered Accountant has been submitted, the Ld. CIT(A) ought to have directed the AO to delete the disallowance made u/s 40(a)(ia) in respect of interest paid to Religare Finvest Ltd. without deduction of tax at source considering the amendment made by Finance Act, 2012 w.e.f. 01.04.2013 which has a retrospective application as held by the Hon'ble Delhi High Court in case of Ansal Landmark Township Ltd. 377 ITR 635 and the Hon'ble J&K High Court in case of Soma Trg Joint Venture vs. CIT (2017) 100 CCH 26 in order dated 15.09.2017. 2. In case of Barclays Investment & Loan (India) Ltd., the assessee vide various lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide that instead of 100 percent, only 30% of such payments will be disallowed. " From the above it can be noted that the amendment made by FA (No.2) Act, 2014 w.e.f. 01.04.2015 is to remove unintended and undue hardship and therefore this amendment should be give retrospective effect as per the various decisions stated above. It is also submitted that the Hon'ble Supreme Court in case of CIT Vs. Vatika Township Pvt. Ltd. 109 DTR 33 has held that legislations which modify accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. However, if legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. Therefore even in a case it is held that the disallowance u/s 40(a)(ia) is warranted, same should be restricted to only 30% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by holding as under: 3.2.2 Determination: (i) I have duly considered the submissions of the appellant, assessment order and the material placed on record. It is an undisputed fact that as on 31.03.2012, the appellant was having share capital of Rs. 7,50,200/- and Reserves of Rs. 14,62,377/- i.e. it was having 22,12,577/- of its own interest free funds whereas it has shown investment in equity shares of M/s Salasar Buildhome Pvt. Ltd. to the tune of Rs. 33.50 Lac. It was the contention of the appellant that it has made application for allotment of equity share of M/s Salasar Buildhome Pvt. Ltd. during the FY 2009-10 and the equity shares were not issued till date and by mistake, in the balance sheet as on 31.03.2012, the same was shown as investment and the provisions of section 14A of the Act were not applicable on share application money as it could not yield any income. I find merit in the contention of the appellant as in the case of Rainy Investment Pvt. Ltd. vs. ACIT 56 SOT 0061 (Mum.) as relied upon by the appellant, it was held by the Hon'ble ITAT, Mumbai that share application money being incapable of yielding any tax-free income, same would have to excluded in worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghout the year under consideration. The contention that it has neither charged nor paid any interest from/to M/s Ravi Associates and therefore, the disallowance made by the AO is to be deleted is also of no avail as it was noted that the AO has computed day today interest after taking into account the debit/credit balance i.e. after charging interest on debit balances and allowing interest on credit balances. During the appellate proceedings, the appellant could not controvert these findings of the AO, as recorded in the assessment order. (ii) Therefore, in view of the above discussion and looking to the facts and circumstances of the case, it is held that the AO was justified in making disallowance of Rs. 1,42,790/- u/s 36(1) (iii) of the Act and hence the same is hereby sustained. 09. While pleading on behalf of the assessee, the ld AR has submitted as under: 1. The assessee has invested Rs. 33.50 lacs in share application money of M/s. Salasar Balaji Buildhome (P) Ltd in earlier years. The AO observed that assessee has claimed interest expenses of Rs. 28,73,401/- and claimed all the expenditure under the head business expense. From the books it is not ascertainable what a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance u/s 36(1)(iii) cannot be made. 4. Otherwise also, assessee is having interest free funds (PB 22-24) in the form of share capital (Rs. 7,50,200/-), reserves and surplus (Rs.14,62,377/-) and the sundry creditors (Rs.33,34,531/-) aggregating to Rs. 55,47,108/-. Out of which, amount advanced to M/s Salasar Buildhome Pvt. Ltd. is Rs. 33,50,000/- only. Thus, the interest free fund available is more than the interest free advance given. The interest expenditure of Rs. 28,73,401/- incurred by the assessee on short term borrowing of Rs. 47,36,284/- and Long term loan Rs. 1,07,60,791/- aggregating to Rs. 1,54,97,075/- as on 31.03.2012. These loans are invested in stock and trade receivable of Rs. 98,79,984/- and Rs. 79,49,513/- respectively aggregating to Rs. 1,78,29,497/-. Thus, the entire loan was utilized for the purpose of the business of the assessee and not in giving interest free advances. Hence, no part of interest expenditure incurred by the appellant 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 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance could be made towards interest u/s 14A read with Rule 8D. (iii) CIT vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj.) (HC) Where assessee had own interest free funds many times over the investment made in Indian subsidiaries and further, there was no direct nexus between interest bearing borrowed funds and such investment, no disallowance of interest expenditure could be made u/s 14A. (iv) Hon'ble ITAT in case of Vijay Industries for A.Y. 06-07 in ITA No. 673/JP/15 order dated 17.06.2016 where also the disallowance of interest made by AO was set aside by the Hon'ble ITAT but again AO made the disallowance which is confirmed by CIT(A) but considering the fact that assessee has sufficient reserve and surplus to make investment in shares and in the absence of direct nexus between interest bearing funds and investment in shares, the disallowance made by the lower authorities was deleted. In 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be noted that in subsequent years, assessee has received advance from Ravi Associates on which no interest was paid. Even during the year, assessee has received the amount from Ravi Associates between 30.05.2011 to 20.09.2011. Thus, the amount advanced and received from M/s Ravi Associates is because of commercial expediency due to meet the exigencies of business as per the principle laid down by the Hon'ble Supreme Court in case of S A Builders (supra) and therefore, no disallowance u/s 36(1) (iii) can be made. (iv) It is also submitted that as stated in Ground No. 2 above, the interest free fund available after considering the interest free advance given to M/s Salasar Buildhome Pvt. Ltd. would be Rs. 21,97,108/-. This amount is much more than the interest free advance given to M/s Ravi Associates. Therefore, also no disallowance is justified in view of the decisions referred above. In view of the above, the addition confirmed by the Ld. CIT(A) be directed to be deleted. 10. On the other hand, the ld DR has relied on the orders of the authorities below. 11. I have heard both the sides on this issue and also considered the pleadings and factual aspects raised by both the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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