TMI Blog2018 (10) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed by learned CIT(A). Computation of income - assessee has adjusted interest on loan taken from LIC towards interest income received on capital with the partnership firm and net loss is shown under the head ‘income from partnership firms’- admission of additional ground - Held that:- The assessee did not raise this ground specifically in an appeal filed before the learned CIT(A) but raised this issue in written pleadings/submissions dated 06-06-2016 (placed in file) filed before learned CIT(A). The assessment order framed by the AO although dedicated para number 5 discussing this issue but separate additions were not made in the assessment order in computation of income but rather interest income of ₹ 59, 60, 000/- was reduced to NIL after allowing adjustment of ₹ 59, 60, 000/- towards interest expenditure as against claim of deduction of ₹ 62, 46, 604/- made by the assessee. Thereafter again a disallowance is separately made on account of interest payment made on borrowings which were purported to be utilised for granting interest free loans and advances to relatives and sister concerns. The manner in which computation of income is drawn by the AO in pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs had arisen before learned CIT(A) from assessment order dated 31.12.2012 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called the Act ) for AY 2010-11. 2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. IN FACTS AND CIRCUMSTANCES OF CASE LEARNED CIT APPEAL HAS ERRED IN NOT ADJUDICATING ADDITIONAL GROUND BEEN INTEREST PAID TO LIC ON BORROWED MONEY BEING USED FOR BUSINESS. 2. THE LEARNED CIT APPEAL HAS FAILED TO APPRECIATE THAT INTEREST PAID TO LIC ON LOAN IS DISCUSSED IN DETAIL IN OUR LETTER DATED 06/06/2016 AND RELEVANT DOCUMENTS ARE FILED AND MATTER DISCUSSED WITH CIT APPEAL. 3. THE LEARNED CIT APPEAL HAS INCORRECTLY REJECTED APPLICATION FOR RECTIFICATION. 4. THE LEARNED CIT APPEAL HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSE ON GROUND THAT SAME IS USED TO EARN THE TAX FREE DIVIDEND IN AS MUCH AS ASSESSEE HAS INVESTED HIS OWN MONEY IN SHARE INVESTMENT. 5. THE LEARNED CIT APPEAL HAS INCORRECTLY HELD THAT BUSINESS IS COMPOSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 14A read with Rule 8D 2(iii) of the 1962 Rules @ 0.5% on average investments of ₹ 3, 00, 46, 699/- held by the assessee for the year ended 31-03-2010 , wherein disallowance was worked out by the AO to the tune of ₹ 1, 50, 230/- which was added by the AO to the income of the assessee , vide assessment order dated 31.12.2012 passed by the AO u/s 143(3) of the 1961 Act. 4. Aggrieved by the addition made by the AO to the income of the assessee u/s 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules, the assessee filed first appeal before Ld.CIT(A) who dismissed the appeal of the assessee and confirmed the additions as were made by the AO, vide appellate order dated 01/07/2016 passed by learned CIT(A). The learned CIT(A) held that no disallowance of interest expenditure incurred in relation to earning of an exempt income was made by the AO u/s 14A of the 1961 Act read with Rule 8D(2)(ii) of the 1962 Rules nor any direct expenses were disallowed under Section 14A read with Rule 8D(2)(i) of the 1962 Rules, rather the AO invoked Section 14A read with Rule 8D(2)(iii) of the 1962 Rules to make disallowance of expenditure incurred in relation to earning of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 2, 07, 884/- which was claimed as an exempt income. The assessee had investments in shares to the tune of ₹ 2, 82, 57, 710/- as on 31.03.2010 while the investments in shares were ₹ 3, 18, 35, 689/- as on 31.03.2009 , the average investments in the shares comes to ₹ 3, 00, 46, 699/- for the year ended 31.03.2010. We have carefully gone through the audited financial statements, computation of income, tax-audit report , income-tax return filed and other documents which are placed on record by the assessee . On perusal of the audited financial statements of the assessee for the relevant period which is placed in file, we have observed that the assessee has it is own capital of ₹ 11.40 crores . We have observed from the audited Balance Sheet, Computation of income filed, Drawings Account and other financial data s which are placed on record that the assessee has claimed interest expenditure to the tune of ₹ 62.46 lacs as deduction from interest income of ₹ 59.60 lacs earned from partnership firm M/s Ritesh Exports.The assessee also claimed as deduction towards Securities Transaction Tax paid of ₹ 87079/- from Profit in Futures and Options seg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds. We order accordingly. Second Issue: 7. The AO observed from computation of income that the assessee has adjusted interest of ₹ 2, 99, 454/- on loan taken from LIC towards interest income received on capital with the partnership firm and net loss of ₹ 2, 86, 000/- is shown under the head income from partnership firms . The AO asked assessee to explain as to why the interest on loan from LIC should be allowed against interest income from partnership firm. The assessee explained that the said loan from LIC was taken in the financial year 2007-08 and the same is deposited in the partnership firm M/s Ritesh Exports . The AO rejected the contentions of the assessee and did not allow the assessee to adjust interest paid to LIC on loans taken against the interest income from partnership firm, vide assessment order dated 31.12.2012 passed by the AO u/s 143(3) of the 1961 Act. 8. The assessee filed first appeal before the Ld. CIT(A) . The Ld. CIT(A) did not gave any finding on this issue while adjudicating assessee s appeal vide appellate order dated 01-07-2016. The assessee filed rectification application before the Ld. CIT(A) agitating the non adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports. To support its contentions, the bank statements for the financial year 2007-08 of assessee s bank account with Union Bank of India are placed on record. The interest paid on LIC Loans is sought to be adjusted against the interest income from M/s Ritesh Exports which is not allowed by the AO. The assessee did not raise this ground specifically in an appeal filed before the learned CIT(A) but raised this issue in written pleadings/submissions dated 06-06-2016 (placed in file) filed before learned CIT(A). The assessment order framed by the AO although dedicated para number 5 discussing this issue but separate additions were not made in the assessment order in computation of income but rather interest income of ₹ 59, 60, 000/- was reduced to NIL after allowing adjustment of ₹ 59, 60, 000/- towards interest expenditure as against claim of deduction of ₹ 62, 46, 604/- made by the assessee . Thereafter again a disallowance of ₹ 4, 22, 202/- is separately made on account of interest payment made on borrowings which were purported to be utilised for granting interest free loans and advances to relatives and sister concerns. The manner in which computation of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on borrowed funds from outsiders. It is claimed by the assessee that it has own sufficient funds to the tune of ₹ 11.40 crores as well other interest free borrowings which are used for giving loans and advances free of interest to sister concerns and relatives. The AO has applied rate of interest @ 9% per annum on the amount of ₹ 46, 91, 134/- on account of allegation of diversion of fund free of interest to relatives and sister concerns which led to the additions to the tune of ₹ 4, 22, 202/- to the income of the assessee by the AO by invoking provisions of Section 36(1)(iii) of the 1961 Act, vide assessment order dated 31.12.2012 passed u/s 143(3) of the 1961 Act. 12. The assessee filed first appeal before learned Ld. CIT(A) who dismissed the appeal of the assessee vide appellate order dated 01-07-2016 . The assessee has claimed that it has own funds to the tune of ₹ 11.40 crores and borrowings free of interest were to the tune of ₹ 1.21 crores were also available with the assessee, and it was submitted that the interest free loans and advances advanced to sister concerns and relatives were to the tune of ₹ 46.91 lacs only. It was claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal of ₹ 11.40 crores and a claim is made that the assessee also has interest free borrowed funds to the tune of ₹ 1.21 crores. The claim is not controverted by Revenue even before the tribunal. There is no nexus of diversion of interest bearing borrowed funds for advancing interest free loans and advances to sister concerns and relatives are brought on record by Revenue . We are of the considered view that the presumption will apply that the assessee utilised its own interest free funds for the purposes of advancing interest free loans and advances to sister concerns and relatives and the decision of Hon ble Bombay High court in the case of of Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom.) as well as decision in the case of and HDFC Bank Limited v. DCIT (2016) 383 ITR 529 (Bom.) are relevant and shall be applicable . Thus, we are of the considered view that the additions as were made by the AO and as sustained by learned CIT(A) are not sustainable in the eyes of law which we order for deletion. The assessee succeeds in ground number 8 to11 raised before the tribunal in memo of appeal. We order accordingly. 16. In the result, appeal of the assessee is al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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