TMI Blog2018 (4) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration, as the assessee had not earned any exempt income during assessment year 2011-12, therefore, the invoking of the provision of Section 14A r.w.r. Rule 8D of the I.T. Rules by the Assessing Officer is not warranted. Disallowance as interest on loan to subsidiary company - Held that:- We note that money was advanced to the subsidiary company on account of commercial expediency and the ratio of the judgment of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT And Another (2006 (12) TMI 82 - SUPREME COURT) is applicable to the facts of the assessee’s case under consideration. We also note that assessee was having sufficient interest free fund and the Assessing Officer was unable to establish any nexus between borrowed fund and the loan fund to the subsidiary company. Therefore the disallowance for interest on loan to subsidiary u/s 36(1)(iii) by the Assessing Officer is not justified. Addition made on account of bogus purchases of raw materials - Held that:- Assessee has produced details, such as copy of vouchers of purchases of raw jute,invoices, delivery memo, ledger account, bank statement and deduction of TDS for payment made for purchases etc. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of hearing. 3.Ground No.1 raised by the Revenue relates to addition of ₹ 7,49,749/- on account of employees contribution to Provident Fund and ESI fund beyond due date. 3.1.Brief facts apropos this issue are that during the course of assessment proceedings, the Assessing Officer noted that employees contribution to PF amounting to ₹ 66,554/- and ESI fund amounting to ₹ 6,83,195/- have been deposited by the assessee-company after the due date as mentioned u/s 36(1)(va) of the Act. During the course of assessment proceedings, it was submitted by the assessee that online system for payment of ESI was introduced by the ESI Department from October, 2010 and at the initial stage of the change in system, challans could not be generated due to the server problem of ESI Department. The above explanation of the assessee has not been accepted by Assessing Officer as there was no such provision to condone the delay. Therefore, the Assessing Officer made addition to the tune of ₹ 7,49,749/- i.e. (Rs. 66,554 + ₹ 6,83,195/-). 3.2.On appeal, Ld. CIT(A) deleted the addition made by the assessing officer. Not being satisfied with the order of Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively. The funds were invested in equities of subsidiary company and various other companies. Therefore, Assessing Officer noted that any expenditure relatable to earning of such income is liable to be disallowed u/s14A of the Act. The assessee submitted before the Assessing Officer that it has not earned tax free income during the Assessment Year under consideration,therefore section 14A would not be applicable in his case. However, the Assessing Officer rejected the contention of assessee and held that provision of Section 14A of the Act would be applicable in case of all the investments, the income of which is tax free as per the provision of the Act and he also referred the CBDT Circular No.5/2014, dated 11.02.2014, wherein it had been clarified by the CBDT that disallowance under Rule 8D r.w.s 14A of the Act is mandatory even if the taxpayers in a particular year does not earn any exempt income. Therefore, the Assessing Officer worked out the disallowance under Rule 8D(2)(ii) and Rule 8D(2)(iii) at Rs. 5,21,663/- and ₹ 1,89,864/- respectively, aggregating to ₹ 7,11,527/-. 4.2 On appeal, the Ld. CIT(A) deleted the addition.Not being satisfied with the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion i.e. until and unless there is receipt of exempt income for the concerned assessment year, the disallowance u/s 14A r.w.r. Rule 8D of the IT Rules cannot be invoked. Therefore, we note that since the issue in dispute is squarely covered by the above narrated judgments wherein it has been held that if there is no exempt income, no disallowance should be made under section 14A.Since in the assessee case under consideration, as the assessee had not earned any exempt income during assessment year 2011-12, therefore, the invoking of the provision of Section 14A r.w.r. Rule 8D of the I.T. Rules by the Assessing Officer is not warranted. That being so, we decline to interfere in the order passed by the Ld. CIT(A). Hence, we confirm the order passed by Ld. CIT(A). 4.4.In the result, the appeal filed by Revenue (in Ground No.2) is dismissed. 5. Ground No.3 raised by the Revenue relates to disallowance of ₹ 58,29,079/- as interest on loan to subsidiary company. 5.1.Brief facts apropos this issue are that during the assessment proceedings the Assessing Officer noted that assessee-company had advanced loan to its subsidiary company, Kamarhatty Power Ltd and loan was outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kolkata Tribunal, in assessee s own case, in ITA No.947/Kol/2009 for Assessment Year 2008-09, wherein it was held as follows:- 17. We have heard the rival submissions. Whenever acheque issued bya party is cleared through a Bank loan account, the dues to the Bank will increase, if the cheque is cleared out of a deposit account, the dues from the Bank will be decreased. This arithmetic by itself will not show that money had gone out of interest bearing funds. Assesseehas clearly pointed out that the cash credit balance had gone down over the relevant to previous year. In other words, the cash credit account stood replenished why more than what was given out as advance, through deposits made by the assessee during the relevant previous year. Assessee had substantial profit during the relevant previous year and, therefore, there is much strength in its argument that loans did not go out of any interest bearing funds. In any case, the loans were given only to a subsidiary of the assessee and Assessing Officer has not doubted the commercial expediency of such loans. We are, therefore, of the opinion that ld. CIT(Appeals) was justified in deleting this addition. Ground No.4 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .08 crore as share premium on the basis of such dismal performance year after year. Therefore, AO concluded that M/s Kajal Agencies Pvt. Ltd. was an entry operator. So the assessee s claim of purchase of raw jute for an amount of ₹ 13,21,385/- from M/s Kajal Agencies Pvt. Ltd. was rejected. 6.2 The assessee-company has also claimed that it has purchased raw jute for a total amount of ₹ 11,91,084/- from M/s High Growth Vanijya Pvt.Ltd. Shri R.K. Singh AR appeared, before AO, on behalf of M/s High Growth Vanijya Pvt. Ltd. on 25.03.2014. Shri R.K. Singh, the AR submitted certain documents of M/s High Growth Vanijya Pvt. Ltd, before the AO. The AO noted from the profit and loss account of the company that it purchased raw jute amounting toRs. 77,25,786/- and sold the entire stock at ₹ 77,88,253/- and after allowing various expenditure, the profit earned before taxation was only Rs. .900/-. The amount of profit for the corresponding previous year was at ₹ 6,856/-. Therefore, AO noted that the activities of M/s High Growth Vanijya Pvt. Ltd. show that it is nothing but a Jama Khrchi company . The assessee-company claimed two purchase transactions for ₹ 6, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 77,25,786/- and sold the same for ₹ 77,88,253/- and after allowing various expenditure shows a profit of ₹ 900/- only. Based on this fact, Assessing Officer concluded that M/s High Growth VanijyaPvt. Ltd. was also jamakharchicomapny and thus rejected the assessee s claim for purchase of raw jute. The Assessing Officer also noted that assessee had shown yield of finished product to the raw jute at 92.46% and was unable to substantiate the claim of shortage and observed that a part of the shortage was attributable to the purchase of raw jute and disallowed the purchase from the two parties aggregating to ₹ 25,12,469/-( Rs. .13,21,385 + Rs. 11,91,084). 6.6 We note that there is direct correlation between raw material purchased and finished products and the Assessing Officer had accepted the sales as per books of account of the assessee, therefore it cannot be said that purchases were bogus. We note that ratio of finished goods production of raw material consumption ratio was more or less in line with those of the previous year, that is, the percentage of consumption disclosed @ 92.46% for the financial year 2010-11is found to be increased from @ 91% for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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