TMI Blog2018 (5) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... be made without resorting to computation as contemplated under section14A read with rule 8D of the Act. Accordingly, the ground raised by the assessee is allowed and the AO is directed to delete the addition while computing book profit under MAT Addition of interest not allowable under section 36(1)(iii) - Held that:- The advances were either transferred to the assessee company from those subsidiary which merged with the assessee w.e.f. 01.04.10 or given to subsidiary out of commercial expediency for purchase of flat are under business commitment under MOU entered into by the assessee with M/s. Smit Capital Services Pvt. Ltd. We observe that all the advances are connected with the business of the assessee and none was given for non business purposes. The case of the assessee is squarely covered by the decision of “S.A. Builders vs. CIT” (2006 (12) TMI 82 - SUPREME COURT). We are not in agreement with the findings of Ld. CIT(A) that advances were given for non business purposes and nor out of commercial consideration. Consequently, the disallowance of interest amounting affirmed by the Ld. CIT(A) cannot be sustained. - ITA No.2866/M/2016 - - - Dated:- 27-4-2018 - SHRI SAKTIJI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A read with rule 8D(2)(i) on account of interest expenditure directly relating to earning the exempt income. 4. The brief facts are that the assessee is engaged in the business of renting of premises and providing professional services towards coordination and facilitation of projects. The AO, during the course of assessment proceedings, noted that during the year, the assessee has paid interest to the tune of ₹ 1,68,46,840/- on the loans advanced but has not charged/earned/received any interest on the loans given by it. The AO having observed so asked the assessee to justify the claim of expenditure. The assessee was also asked to substantiate the working of disallowance under section 14A read with rule 8D in its computation of income in which no interest expenditure was considered. In response thereto, the assessee replied vide letter dated 05.02.14 that loan of ₹ 5,00,00,000/- taken from M/s. Jhalak Developers Pvt. Ltd. on which interest of ₹ 30,82,192/- was paid. The loan was utilised directly for making investment in M/s. Sharyans Resources Ltd. The AO observed that the bank statement showed that ₹ 5,00,00,000/- was received on 08.04.10 and investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courts in upholding the disallowance under section 14A read with rule 8D(2)(i) amounting to ₹ 30,82,192/-. The Ld. A.R. submitted that M/s. Sharyans Resources Ltd. is a group company in which the group has an exposure to the tune of 60% of the total equity capital whereas the assessee individually holding in the equity capital accounted for 20% of the share holding. The Ld. A.R. submitted that since the investment was made out of commercial and business expediency in order to gain control over the said company and thus constituted a strategic investment on which no disallowance under section 14A read with rule 8D would be made. The Ld. A.R. reiterated the argument as made before the authorities below and submitted that no disallowance could be made under section 14A read with rule 8D with respect to the expenses incurred in connection with making investment in the subsidiary companies from strategic point of view. 7. The Ld. D.R., on the other hand, relied on the order of the Ld. CIT(A) and submitted that since the investment has been made out of the interest bearing funds and therefore, the disallowance has to be made under rule 8D(2)(i) as the expenses are directly incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the decision of Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment (P.) Ltd. (supra) wherein it has been held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated under section14A read with rule 8D of the Act. Accordingly, the ground raised by the assessee is allowed and the AO is directed to delete the addition while computing book profit under MAT. The ground raised by the assessee is allowed. 12. The issue raised in ground No.4 is against the confirmation of ₹ 1,37,64,648/- by the Ld. CIT(A) as made by the AO on account of interest not allowable under section 36(1)(iii) of the Act. 13. The brief facts of the case are that upon a query by the AO as to the balance interest expenditure of ₹ 1,37,64,648/- the assessee replied vide written submission dated 20.02.14 that ₹ 11,65,00,000/- was paid to M/s. Mrignayani Investments Trading Company Pvt. Ltd. for purchase of bonds/debt instruments in the corporate interest of the assessee company which was later merged with the assessee company. Similarly, ₹ 11,85,00,000/- was paid to M/s. Smit Capital Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Ld. CIT(A) in para 6.5 of the appellate order. The Ld. A.R. while referring to the table reproduced by Ld. CIT(A) in para 6.5 of the appellate order submitted that some advances were also transferred to the assessee company upon merger and no borrowed funds were used for the purpose of making such advances. The ld AR contended that the finding of both the authorities below were contrary to facts on record. The Ld. Counsel submitted that the name of the entities appearing at sr.no. 1 to 5 of the said table were subsidiary companies of the assessee and were later on merged with assessee and thus the provisions of section 36(1)(iii) are not applicable to the advances made to subsidiary out of business consideration. The Ld. Counsel submitted that advances to companies/entities appearing from sl.nos. 6 to 9 were made out of business consideration as all these were subsidiary companies of the assessee which later on merged with the assessee w.e.f. 01.04.10 and thus were not advances to the outside parties. The entity appearing at sl. no.10 is a subsidiary company and the money was advanced out of purely business and commercial considerations to the subsidiary and thus no disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39,09,753 - 39,09,753 Advances transferred from books of Athith Investment rading Co. Pvt. Ltd. on account of Merger. 2 Dilip Kumar - 54,00,000 - 54,00,000 Advances transferred from books of Athith Investment Trading Co. Pvt. Ltd. on account of Merger. 3 Yusuf Lakdawala - 32,50,000 - 32,50,000 Advances transferred from books of Athith Investment Trading Co. Pvt. Ltd. on account of Merger. 4 Pegasus Stocks Shares Pvt. Ltd. - 49,00,000 - 49,00,000 Advances transferred from books of Caprilloy Polymers Pvt. Ltd. on account of Merger. 5 Vajradhar Leasing Finvest Pvt. Ltd. - 2,00,00,000 - 2,00,00,000 Advances transferred from books of Caprilloy Polymers Pvt. Ltd. on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As is clear from the above statement, the entities from sl. no.1 to 5 are the entities which merged with the assessee company and all the advances mentioned from sl. no.1 to 5 were received by the assessee company upon merger of the said entities with the assessee company. 18. So far as the advances to entities from sl. no.6 to 9 are concerned, these were the wholly owned subsidiaries of the assessee which were merged with the assessee w.e.f. 01.04.10. Entity at sl. no.10 M/s. HJB Developers Builders Pvt. Ltd. is a subsidiary of the assessee company and payment to Kalpataru Enterprises of ₹ 21,00,000/- was against the purchase of flat whereas the advance given to M/s. Smit Capital Services Pvt. Ltd. at sl. no.13 was given under MOU entered into on 20.02.10. It is clear from the above that the advances were either transferred to the assessee company from those subsidiary which merged with the assessee w.e.f. 01.04.10 or given to subsidiary out of commercial expediency for purchase of flat are under business commitment under MOU entered into by the assessee with M/s. Smit Capital Services Pvt. Ltd. Looking at the totality of the facts, we observe that all the advances are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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