TMI Blog2018 (1) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... stand that there cannot be any disallowance u/s 14A of the Act because the assesee had not earned any tax free income during the previous year. This submission is not being considered in this appeal by the revenue. We make it clear that the conclusion in this appeal are confined to the grounds raised by the revenue on the factual details given by CIT(A) which remained uncontroverted . We are of the view that the disallowance on interest expenses made by CIT(A) was just and proper and calls for no interference. Consequently ground no.2 raised by the revenue is also dismissed. - I.T.A No.281/Kol/2015 - - - Dated:- 1-12-2017 - Sri N.V.Vasudevan, JM And Shri M.Balaganesh, AM For The Appellant : Shri David Z.Chawngthu, Addl. CIT, Sr. DR For The Respondent : None ORDER Per N.V.Vasudevan, JM This is an appeal by the Revenue against the order dated.31.12.2014 of C.I.T.(A)-10, Kolkata relating to A.Y.2010-11. 2. Ground No.1 raised by the revenue reads as follows :- 1. On the facts circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance of interest expense to the tune of ₹ 78,000/- out of total disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl.No. Particulars Amount in (Rs.) 1. Investment in Fixed Deposits 4,96,71,936/- 2. Investment in Recurring Deposits 2,82,74,040/- 3. Investment in Housing Society 41,00,000/- 4. Shares in Banks 1,73,800/- TOTAL 8,22,19,776/- The Commercial expediency/necessity of the above Investments was explained by the assessee as follows :- i) Investment in Fixed deposits and Recurring Deposits are mostly made out of recurring savings of assessee s Proprietary Firm 'Special Steel Stores' to keep the savings secure and intact. As a matter of keeping this balance secure, different Fixed Deposits and Recurring Deposits are created periodically from assessee s Business savings and are again reinvested at the time of maturity in the most convenient manner. The Investment in fixed deposits was done with a view of earning profits on assessee s ploughed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability. It was submitted that the AO wrongly observed that the assessee wilfully attempted to reduce the taxable income by increasing interest expense. The assessee pointed out that the assessee had taken unsecured loan of ₹ 39,00,000/- from Satya Prakash Sharma(HUF) bearing interest @ 12% per annum amounting to ₹ 4,68,000/- in the ordinary course of business. Apart from Satya Prakash Sharma (HUF), similarly the firm has also taken unsecured loans from 9 (nine) other individuals, firms and HUF at the same interest rate during the financial year 2009 - 2010. That means that e firm has borrowed funds at the rate of 12% across the board from all individuals, firms and HUF. So, it is apparently very clear that loan from outside party is equally expensive as that from relative. Moreover, there was idle fund in the hands of Satya Prakash Sharma (HUF). Thus, there was no point of borrowing fund from outside when it can be borrowed from persons covered u/s 40A(2)(b) at the same rate of interest. Mere facts that more than 50% of unsecured loan outstanding is taken from a related party does no ipso facto indicate a self - imposed liability. Thus, there was no attempt of increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k for availing working capital finance from the bank to continue business operations without hindrance. Secondly the CIT(A) also held that the AO failed to consider the availability of own funds of the assessee. Thirdly he held that the assessee s average rate of interest of availing loan has been arbitrarily and excessively fixed by the AO that the cost of borrowing would be only 6.5%. CIT(A) however sustained addition made by the AO to the extent of ₹ 75,000/- by invoking the provision of section 40A(2)(b) of the Act. The following are the relevant observations of CIT(A) : 3.2.6. The ground is allowed subject to some disallowance of interest payment to Satya Prakash Sharma, HUF, which was paid at 12%. I restrict the allowable interest to 10% having regard to borrowing rates from uncoonected parties. Thus 2% of ₹ 39,00,000 = ₹ 78,000 is disallowed u/s 40A(2)(b) of the I.T.Act. We are not aware as to whether the assessee has filed the appeal against this. In this proceedings none appeared on behalf of the assessee and therefore this appeal is being decided on merits ex parte. We make it clear that if the assessee challenges the aforesaid addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural Resource Fund ₹ 1500000/- ₹ 1500000/- Total ₹ 3100000/- ₹ 3100000/- The AO therefore recalculated disallowance u/s.14A as under: Interest expense in P L A/c - Rs.l,69,15,562.75/- Average investment- Rs.31 ,00,000/- Asset as on 31.03.2009- ₹ 241751324.78/- Asset as on 31.03.2010- Rs. 237081680.57 Average asset- ₹ 239416502.67/- 8D(ii) ₹ 1,69,15,562. 75 x ₹ 31 ,00,000 = Rs.219025.18/- ₹ 23,94,16,502.67/- 8D(iii) 0.5% of Average investment= ₹ 15,500/- Hence total disallowance u/s 14A read with Rule 8D in the books of M/s Special Steel Store was arrived at by the AO at ₹ 2,34,525/- in addition to the disallowance made by the Assessee. 13. On appeal by the assessee, the CIT(A) restricted the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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