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2019 (11) TMI 406

..... fee paid to ROC for increase in share capital. The disallowance has not been made on the basis of any incriminating material found during the course of search. In absence of the same, the Assessing Officer cannot exercise his jurisdiction u/s 153C of the Act for the captioned Assessment Year. We place reliance on the ratio laid down by the Hon’ble Apex Court in the case of Sinhgad Technical Education Society [2017 (8) TMI 1298 - SUPREME COURT] and Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] Hence, the assessment order passed by the assessee u/s 153C r.w.s. 143(3) do not stand. The additional ground raised by the assessee is thus allowed. Disallowance of interest paid to Y2K System, on the ground that the loan taken from Y2K System, was treated as unexplained in Assessment Year 2003-04 - HELD THAT:- Admittedly, the said loan which was raised vide loan agreement dated 16.03.2002 was advanced to the assessee was interest free for a period of four years. - earlier agreement came to an end and a fresh loan agreement was entered into between the parties, under which it was agreed that the interest @ 6 % would be charged. There is no dispute of the aforesaid stand of the asses .....

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..... be made in the hands of the assessee. Hence, Ground No.4 raised by the assessee is thus allowed. Penalty u/s 271(1)(c) - disallowance of foreign exchange loss and the disallowance made u/s 14A - HELD THAT:- CIT(A) deleted the penalty against which the Revenue is in appeal. We have in paras above already deleted the disallowance made in the hands of the assessee both on account of foreign exchange loss and addition u/s 14A of the Act. Hence, there is no basis for levy of any penalty for concealment of income u/s 271(1)(c) - ITA Nos. 615 to 618/Del/2013, ITA No. 418/Del/2015 - 22-10-2019 - Ms. Sushma Chowla, Judicial Member And Dr. B.R.R. Kumar, Accountant Member For the Appellant : Sh. Ajay Wadhwa, Adv. For the Respondent : Ms. Nidhi Srivastava, CIT DR ORDER PER SUSHMA CHOWLA, JM: Out of this bunch of appeals, the assessee is in appeal against the order of CIT(A)-1, New Delhi dated 06.12.2012 relating to assessment years 2005-06, 2007-08, 2008-09 & 2009-10 respectively passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). Further, the Revenue has filed an appeal against the order of CIT(A)-1, New Delhi dated 17.11.2014 relating to Assessment Year 2009-10 .....

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..... year was completed assessment on the date of search and there was no incriminating material found/seized relating to the disallowance of ₹ 5,22,238/0 being 20% fees paid to ROC for increase in authorized share capital meaning thereby the issue is squarely covered by the judgement of Hon ble Delhi High Court in the case Kabul Chawla 380 ITR 573. 7. The Ld.AR for the assessee stated that the issue raised in the additional ground was purely legal and did not require any investigation into facts. Hence, the same may be admitted. 8. We find merit in the plea of the assessee in this regard and the additional ground of appeal is admitted for adjudication. Coming to the issue raised vide additional ground of appeal, the case of the assessee is that in the absence of any incriminating material found/seized relating to disallowance of 20% fee paid ROC of ₹ 5,22,238/-, no assessment could be made u/s 153C of the Act. In this regard, reliance was placed on the decision of Hon ble Supreme Court in the case of Sinhgad Technical Education Society [2017] 397 ITR 344 and the decision of Hon ble Delhi High Court in the case of Kabul Chawla 380 ITR 573. 9. The Ld.DR for the Revenue place .....

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..... in Assessment Year 2003-04 vide para 23 has held the loan received from Y2K System is genuine and the addition has been deleted vide order dated 01.07.2019. He also pointed out that another ground on which the said interest was disallowed in the hands of the assessee was that upto 31.03.2005, no interest was being paid on the said loan and now interest was made charged @ 6 %. In this regard, he referred to the agreement between the parties which was w.e.f. 01.04.2006 under which it was agreed that for term of four years, interest would be charged @ 6 %. The Ld.AR for the assessee also explained that the assessee was following mercantile system of accounting and hence expenditure was debited; but since the assessee was incurring losses, the parent company i.e. Y2K System agreed to reverse the interest, which was reversed in Assessment Year 2009-10 in which year the assessee paid taxes on its reversal. In this regard, reliance was placed on the ratio by the Hon ble Supreme Court in the case of CIT vs M/s. Excel Industries Ltd. in Civil Appeal No.125 of 2013 dated 08.10.2013. 14. The Ld. DR for the Revenue placed reliance on the order of CIT(A) with special reference to para 3.4. 15. .....

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..... hether by a subsequent agreement between the parties, interest free loan can be converted to interest bearing loan. The answer to the same is yes . The parties in the first go had agreed that the loan would be non interest bearing but later on lender had demanded interest @ 6 % w.e.f. 01.04.2006 which was agreed upon by the borrower of the assessee company. In these circumstances, the interest claimed by the assessee was to be allowed in its hands in its entirety. 17. Now coming to the next statement of the assessee that since it had losses, the interest expenditure was reversed back in Assessment Year 2009-10 on which taxes were paid in the said year. The said fact is again not disputed and while deciding the present appeal, we consider the facts for the present year and decide the issue on its merit. Accordingly, we allow the claim of the assessee vis-à-vis the interest expenditure. Thus, this ground of appeal raised by the assessee is allowed. 18. The Ld.AR for the assessee fairly pointed out that the issue in Assessment Year 2008-09 was similar to the issue raised in Assessment Year 2007-08. Following the same parity of reasoning, we allow the claim of the assessee in As .....

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..... sessing Officer. 22. The case of the assessee before us is that the loss suffered by the assessee was an item of expenditure to be allowed u/s 37(1) of the Act. In this regard, reliance was placed on the ratio laid down by the Hon ble Supreme Court in the case of CIT vs Woodward Governor India Pvt.Ltd. [2009] 312 ITR 254(SC) and various other decisions. 23. The Ld.DR for the Revenue on the other hand, placed strong reliance on the orders of the authorities below and stressed that it was notional loss on the loan received and hence, it was a capital loss. 24. We have heard the rival contentions and perused the record. The assessee had raised loan in Assessment Year 2003-04, which during the assessment proceedings was held to be non-genuine. However, the Tribunal vide order dated 01.07.2019 has accepted the case of the assessee and held that the loan was raised by the assessee from its holding company in order to meet its working capital requirement. The interest paid on such loan has been allowed by us as revenue expenditure in the paras above for Assessment Years 2007-08 & 2008-09. During the year under consideration, the issue which arises is in respect of the diminution in va .....

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