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TMI Blog2014 (2) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of an amount of Rs. 408,412/- towards expenditure incurred u/s 14A for a dividend income of Rs. 900,459/- b. Without prejudice, it is submitted, that at the most the AO, in order to justify a very small and negligible amount of time, effort and expenditure is required to earn dividend income, should have disallowed O.5% of such exempt income. c. Without prejudice, it is submitted, that at the most the AO, should have followed the precedence of AY 2007-2008 in your Appellant's own case. d. In doing so, the CITA has overlooked the fact that the AC had already disallowed certain expenses of interest on the so-called investments in shares out of borrowed funds and, thus, this disallowance is a double jeopardy. 3. Disallowance of Interest free advances to subsidiary companies / Disallowance of Interest expenditure on Investment for Controlling Interest :- a. The learned CITA has erred in law and on facts in upholding, vide paragraph 6 at page 17 to 21 of his Order, the disallowance of Rs. 238,580/- incurred on interest on funds borrowed by it, which do not appear to have been deployed for the purposes of their business but utilised for lending to your appellants group comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of Notice of Demand could be clerical / typographical error and the same does not make either the assessment order or the demand notice as either erroneous or in valid. Grounds of Revenue's Appeal: "1. On the facts and circumstances of the case, the Ld. CIT(A) erred in not considering the fact that charging the arms length interest at 6 months LIBOR + basis points is in congruous as it leads to distortion of the estimation of the risk assumed by the assessee." "2. On the facts and circumstances of the case, the Ld. CIT(A) erred in fact and law while benchmarking the imputed interest on interest free loans by relying upon the RBI's Circular in respect of External Commercial Borrowings (ECB), which does not take into account the geographical perspective of the international transactions and violates the very spirit of Transfer Pricing Provisions." 2. Ground No.1 of the asessee's appeal and the ground raised by the revenue are relating to common issue of T.P. Adjustment of Rs. 18,227,199/-. The assessee lent various amounts to its AEs as under: S.No. Name of the AE Loan Given (Rs.) Outstanding (Rs.) 1. Ion Exchange Asia Pacific Ltd., Singapore 10,26,772/- 10,26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) when the money is lent the interest rates applicable should LIBOR based which also find support from the decisions of ITAT. It was observed by Ld. CIT(A) that TPO in his order also has considered even LIBOR rate and arriving at the interest rate to be charged at LIBOR + 650 basis point + 300 basis points (transaction cost). Ld. CIT(A) has further found that it was the submission of the assessee that loan given by the assessee to its AE have no transaction cost and it was observed by Ld. CIT(A) that TPO did not give any comparable circumstances to arrive at 650 basis points more than on LIBOR and further 300 basis points on account of transaction cost. Considering all these facts Ld. CIT(A) arrived at a finding that suitable benchmark in the case of the assessee with regard to impugned transaction will be the rate prescribed by RBI for ECB. Accordingly, he has given the direction to the AO to adopt LIBOR rate as per RBI's Master Circular No.02/2007-08 dated 2/7/2007 on External Commercial Borrowings (ECB) provided that all in cost ceiling for ECB with average maturity period of three years and up to 5 years is to be six months LIBOR + 150 basis points and for period more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an appeal filed before Ld. CIT(A). However, Ld. CIT(A) has upheld the disallowance rejecting the contentions of the assessee. The assessee is aggrieved, hence, has filed the aforementioned ground. 3.1 After narrating the facts, the Ld. AR submitted that assessee has sufficient own funds to make the investment from where the tax free income has been earned. He submitted that even current year's income is sufficient to satisfy the investment made by the assessee as the current year's income is to the extent of Rs. 9,96,59,710/-. Thus he submitted that no disallowance should have been made on account of interest. So far as it relates to other expenses he submitted that assessee did not incur such expenditure and the addition in its entirety should be deleted. 3.2 On the other hand, it was submitted by Ld. DR that Rule 8D is in force for the year under consideration and, therefore, disallowance has to be computed as per Rule-8D. Ld. Dr submitted that disallowance upheld by Ld. CIT(A) is in accordance with law. 3.3 We have heard both the parties and their contentions have carefully been considered. From the order of AO and Ld. CIT(A) we have found that it was the contention of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 The primary facts are not in dispute. As we gather from the orders by the Revenue authorities, the assessee has advanced Rs. 79 lakhs to its subsidiary, M/s. Ion Exchange Enviro Farms Ltd. (IEEFL) on interest free basis in an earlier year, which continues to outstand for the current year/s as well, claiming the said loan to be for non-business purpose and, further, advanced from interest bearing borrowed funds. The Assessing Officer (A.O.), thus, effected the disallowance qua interest at the average interest rate incurred by the assessee for the relevant year/s, being at 4.85% and 3.6% p.a. for the two successive years respectively. Apart there-from, investments worth Rs. 230.53 lakhs (for A.Y. 2005-06) and Rs. 467.03 lakhs (for A.Y. 2007-08) stand made in shares for acquiring controlling interest in subsidiary companies. In the absence of specific data in the form of cash flow statement, or the analysis of the balance-sheet for the relevant years, the investments have been presumed to be financed from interest bearing borrowed funds and, accordingly, interest disallowed for the two years at Rs. 11.18 lakhs and Rs. 16.81 lakhs respectively. 4.2 It is, therefore, apparent that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om year to year. This is as not only fresh investments have been made, but also that the financing position being subject to change, it may well be that the investment, hitherto financed by borrowed capital, gets sourced from own funds on the influx of profits or a built-up of reserves, etc. The matter, we may clarify, is purely factual, and the onus to establish its claim is on the assessee. 4.4 Under the circumstances, therefore, in view of the foregoing as well as in line with the orders by the tribunal in assessee's case for the earlier years, the matter is restored back to the file of the A.O. for fresh adjudication after affording a reasonable opportunity of hearing to state its case before him. We decide accordingly. " 4.1 It was submitted that there is no difference in the facts and circumstances of the present case as well as in the facts and circumstances of the aforementioned assessment years. 4.2 However, Ld. DR relied upon the order passed by Ld. CIT(A). 4.3 After hearing both the parties, as it has not been pointed out that there is any difference in facts and circumstances of the present case, and earlier years decided by the Tribunal, respectfully following the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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